Monday, December 16, 2013

Math Arguments

The purpose of this post is to address many of the statements/arguments made by Austrians about math or their position on math.

One statement I have been hearing lately is along these lines, "Austrians are not against all math, just SOME math" or, "Austrians are not against math, just mathematical predictions" etc etc.  I find these claims to be rather telling of the person arguing on behalf of the Austrian position.  These statements tell me right away they do not even know the position of their own school of thought.  On their view, these 5 quotes need to be interpreted as only being against some math and/or mathematical predictions.  Here are the relevant quotations:

"The only economic problems that matter, defy any mathematical approach" - Ludwig Von Mises
"Now, the mathematical economist does not contribute anything to the elucidation of the market process"  - Ludwig Von Mises
"The equations formulated by mathematical economics remain a useless piece of mental gymnastics and would remain so even if they were to express much more than they really do" - Ludwig Von Mises

(These next two are my favorite)
"The mathematical method must be rejected not only on the account of its bareness.  It is an entirely vicious method, starting from false assumptions and leading to fallacious inferences.  Its syllogisms are not only sterile: they divert the mind from the study of real problems and distort the relations between various phenomena" - Ludwig Von Mises
"Mathematics cannot and does not enter into measuring ideas or values that determine human action.  There are no constants in these.  There is no equality in market transactions.  Therefore, mathematics does not apply.  The use of mathematics requires constants.  Mathematics cannot be used in economic theory" - Percy L. Greaves.

All of these quotes can be found in various articles on

I am truly baffled how someone claiming to be an adherent of the Austrian School could read these, or any Austrian literature, and conclude that Austrians are only against the use of some math.  I have read a lot of Austrian literature, and I personally have never read anything that would support that claim.  Of course, quotations cannot be "proof" of anything, but I do think they provide rather strong evidence in favor of my argument.  Moreover, the Percy Greaves quotation is in response to the question, "is economics completely divorced from mathematics?"  Clearly, from his response he thinks it is.

Another statement I hear from Austrians is that neo-classicals do not give them any mathematical propositions they should accept.  This seems to be a rather silly statement.  For Austrians should accept all mathematical propositions that are true, from 1 + 1 = 2 to the propositions in set theory or algebraic topology etc.

However, to get specific I would like to point out two mathematical fields that have vast applications in economics.  First is game theory.  Game theory is a branch of mathematics first developed by Emile Borel, and then popularized by the works of Von Neumann, Morgenstern, Nash etc.  There is a plethora of economic questions game theory answers.  One example of such a question is - how do oligopolies decide on how much to produce given the production of the other firms?  Game theory provides the answer to this question.

Second, is functional analysis.  In general, functional analysis is the study of infinite dimensional vector spaces.  This field answers the question - how can a copper mining company extract Q tons of copper from a mine over T years and maximize its profit?  To find this function is one thing, and to prove it is the maximum of all functions is another.  I would like to ask an Austrian how to solve this problem without the use of mathematics?  It simply cannot be done.

Mathematics is vitally important to the study of economics, and to denounce it the way influential Austrian scholars have is exactly why I am not an Austrian economist.

Wednesday, November 20, 2013

Economic Analysis of Laws

The law of supply is a fundamental law in economics.  It is used in the majority of economic theories either implicitly or explicitly.  There are many factors that go into how supply is calculated but one of them is input prices.  Basically, this says as input prices go up/down, suppliers will produce less/more and therefore the supply curve will shift.

Let's use this theory when considering laws.  First, I will use a simple example like littering.  Littering in my home state results in a $500 fine.  The fine is set at this level not because littering actually merits a $500 fine but rather, it is unlikely to get caught littering so the price must be high enough to deter littering.  There are some mathematics behind how they come up with $500 that I will not get into but that is the general theory.  Clearly, if there was no such fine littering would increase due to the first paragraph.  The price is less so therefore there will be more "supply".

Now, lets extrapolate this example to larger crimes.  What is the price of murder?  It could be a death sentence, or, if someone making $40,000 a year gets caught murdering someone 20 years before retirement that will cost him $800,000 (20*40K).  This is not even including the chance of getting a pay raise, the cost of his leisure, his price on his right to vote etc etc.

I said all of that to reference a point of view I find to be absurd.  Recently, I was in a discussion with someone that argued because murders take place even though laws prohibiting murders exist the laws prohibiting murder are unnecessary.  The idea is the law does not deter the action so the law is useless.

This argument is simply ridiculous.  Laws prohibiting murder exact a cost that is extremely high for those contemplating such action.  However, without the law the cost drops to 0.  To claim that murders won't increase, as my opponent claimed,  is to defy economic law.  Clearly, the marginal benefit of murdering someone will be greater than the marginal cost if the cost of murdering someone is nil.  However, if the marginal cost is $1,000,000+ it is much more difficult for marginal benefit to be greater than marginal cost.  Hence, increasing the price will deter people from committing murder.

Another economic reason why these kinds of laws are good for society is based on the division of labor.  We allow other people to enforce justice on our behalf.  When criminal activity ensues and harm is realized on ourselves or a loved one it is human nature to demand justice.  If we were expected to enact justice every time a crime was committed against our person, property, or loved one we would have to stop our productive lives to pursue justice against the perpetrator.  The lack of division of labor in this regard would lead to economic inefficiency.

This argument has nothing to do with governmental laws, governmentally provided police forces, or governmentally provided national defense vs. private laws, privately provided police force, or privately provided national defense.  My argument is merely pointing out that any civil society requires these laws.  Understood in this sense, I am appealing to how Bastiat understood the law; laws are instituted because the laws are meant to protect what preceded the legal institution in the first place, namely, person and property.

Saturday, November 16, 2013

Cubic Spline Interpolation and Econometrics

This paper was written for my Numerical Analysis class.  It was a small project in which I had to write a code and also answer a real world problem.  One of the problems I face as an aspiring economist is finding appropriate data to run regressions on.  If the data does not have the same time frequency, the model is meaningless.  Hence, I wrote a code for Cubic Spline Interpolation and showed it accurately interpolates data.

The paper requires a bit of mathematical maturity, but the idea can still be clearly understood.

Note: I did not include any of the appendices, and the format of the paper was altered when I turned it into a PDF for some reason.

Monday, November 11, 2013

An Analytical View of The Chilean Miracle.

(Image Courtesy of Google Images)

The dynamics of the economic marketplace in many South American countries has been due mainly to political instability based on the effort of South American leaders to centralize government’s economic and political power at the expense of individual liberty. Economic mechanisms are sometimes used to subsume the individual into the state, and grow executive power. However, neo-liberal market reforms instituted in Chile after the coup that ousted Allende, slowly eroded executive power during a tacit shift towards individual freedom and increased economic production that eventually lead to the peaceful ousting of Pinochet’s authoritarian dictatorship, and a thriving economy. The failure of other Latin American democracies in South America has been due to the political insecurity of the executive to relinquish total economic control.        
Freedom isn’t only the right to be politically free, via the rule of law and democratic elections, but also economically free, via voluntary transactions. The free market principles of market reform in South America are based on the idea of Adam Smith’s “invisible hand”, the notion that the allocation of scarce resources with multiple uses is best organized by free people in voluntary, mutually beneficial transactions, as opposed to government coordination of economic arrangements. This spontaneous order, according to Dr. Milton Friedman, can also remove some of the political constraints by government over the individual, “By removing the organization of economic activity from the control of political authority, the market eliminates this source of coercive power. It enables economic strength to be a check to political power, rather than reinforcement.” (Friedman 15) The more economic control the government has over the individual, the more one will look to the government rather than themselves or others, to solve their problems, directly correlating to increased political power for the state.        
Immediately following the global economic instability of the Great Depression beginning in 1930, dictators and presidents have been using economic control to gain and maintain political power. For instance, in the 1930s, Brazil’s Getulio Vargas backed by the military, instituted the “Estavo Novo” or “new state” and declared himself dictator. His government interventions into the economic realm were modeled after Italian fascism of the same time period. He instituted import substitution and corporatist policies that “…combined strong government involvement in economic activities with the organization of workers into government controlled unions.” (Vanden and Provost 229). Peron, in Argentina followed a similar model to that of Vargas in Brazil, “In power, Peron’s strategy was similar to that of Vargas… his rule took on nationalistic tones and policies of economic protectionism were implemented. The government took a strong hold of the economy…” (Vanden and Provost 229). These two populist leaders in Latin America derived their power by controlling individual’s economic situation by limiting competition for both input and output, while dissipating the costs among the population as a whole.      
This corporatist/fascist mentality is largely associated with the political “right” and perceived to be on the opposite pole of the political spectrum than communism. However, this conclusion disregards altogether the relation of the individual to the state in both systems and his subjugation thereof; both fascism and communism are different degrees of statism, as both clearly institute various degrees of dirigisme. In professor Peter Drucker’s study of totalitarianism, he saw fascism as the logical ideological progression of socialism, “Fascism is the stage reached after communism has proved an illusion, and it has proved as much an illusion in Stalinist Russia as in pre-Hitler Germany.” (Hayek 80) Moreover, after his research on the origins of fascism and it’s relation to communism, largely from first-hand accounts, led prominent economist F.A. Hayek to conclude, “While to many who have watched the transition from socialism to fascism at close quarters the connection between the two systems has become increasingly obvious…” (Hayek 81-82). Furthermore, prominent 21st century economist Dr. Thomas Sowell adds, “…there is remarkably little difference between Communists and Fascists, except for rhetoric, and there is far more in common between fascists and the moderate left…” (Intellectuals 99).             

The intervention into the economy by government is primarily out of political expediency; ensuring political longevity and increasing the concentration of power afforded to the state, specifically the executive branch. Dirigiste economies are inherently flawed and tend to fail irrespective of where state control is focused (socialism/fascism), and thus provides the political capital needed to employ such a blatant political power grab. For example, in Argentina during the military regime of the late 70s and early 80s the military junta, despite economic counsel citing the economic instability was due to an interventionist state and the ISI strategy, advised the junta that, “loosening of free market forces would not only create the conditions for renewed economic growth but also discipline the social actors…” The junta’s inability or “persistent refusals” to relinquish “their state-oriented expectations and behaviors… led to economic disaster.” (Vanden and Provost 435). The state, rather than implementing economic freedom that could threaten their political power, chose the status quo at the economic peril of the people. 
The junta’s inability to relinquish control over the economy eventually did them in. This dissatisfaction with the economic instability perpetuated by the state eventually paved the way for Carlos Menem’s democratic election in 1989, and the political capital needed for market reform, albeit partial. Despite growing inflation and economic instability that had been growing for decades, Menem was able to quell the inflation by his “convertibility law”, which pegged the Argentine peso to the U.S. dollar, stabilizing the money supply and bringing down inflation by using their foreign exchange reserves as a commodity (Schamis 71). In addition to a stable currency, Menem promulgated market reforms, which “included trade-liberalization, deregulation, and privatization.” (Schamis, Transition 72). In Short, the parity of the Argentine peso and the U.S. dollar, proved to be a Trojan horse and eventually became its demise. “Bank money” and ensuing credit expansion due to lax reserve requirements eventually lead to an economic bust in 2001-2002 (Schamis, Transition 73).

Menem’s partial market reforms were initially successful, and a statist political power grab ensued as he attempted to capitalize on his economic success with increased political power (Schamis 72). Thus, leading to centralized state power corrupting the entire economy, particularly in Menem’s case, running up massive federal deficits in order to sustain Menem’s “strategy for achieving constitutional reform and winning reelection.”  And eventually lead to the economic collapse in 2001-2002 (Schamis, Transition 72). A few years later the Kirchner’s, beginning with Nestor and then later his wife Christina, implemented pragmatic policies to stabilize the economy. From there, following a well established pattern in South America, the political power grab ensued. Christina’s political and economic overreach—far more egregious and further “left” than her husbands before her—advocated for more state control of the economy and a nationalization that Professor Schamis describes as “more Chavez-like than anything else” (Schamis, Decay 72). Schamis describes further the goal of such economic and political power grabs by the state in broader terms:
"Social policy through government discretion in a system marked by concentrated executive authority is fundamentally a tool to give rulers more resources for their patronage—that is, to control social groups and diminish the autonomy of civil society. The idea that some rights have to be violated for others to be advanced is thus perverse; it is just about abusing power, which plants the seeds of an undemocratic political order." (Decay, 74)
No matter where on the political spectrum one may be, violations of political and economic rights are inevitable in a system where government is concentrated in an all-powerful executive; as individual rights are manipulated by the state to erode the civil society as means to end. In the case of Chile, the situation is somewhat symmetrical to Argentina, yet in many ways asymmetrical. The key difference being more pragmatic and realistic macroeconomic advice under the junta by the “Chicago boys”, a group of Chilean economists that had studied under the tutelage of Milton Friedman at Chicago University (Stephens). The market reforms success came in spite of a ruthless dictator and an economy in shambles, as Bret Stephens explains, “Inflation topped out at an annual rate of 1000%, foreign currency reserves depleted, and per capita GDP was roughly that of Peru…”    
The cause of the economic catastrophe was inherent in Allende’s statist economic policy that was rife with expropriations; often by force, nationalization, wage and price controls and rationing of consumer goods by local boards called the “Unions of Supply and Price Controls” know as JAP (Lira). The latter was instituted due to the inflation and lack of consumer goods as an economic consequence of the former. Lira describes how rations were distributed if an individual was openly opposed the state, “these people perceived as “unfriendly” to Allende… received insufficient rations for their families, or no rations at all.” (Lira). The socialist policies of Allende worked to stifle political freedom just as much as economic freedom. The complete decimation of the economy by the Marxist economic policies of Allende lead ultimately to a military coup led by Augusto Pinochet and a period of 17 years of dictatorial rule. 
Once in office, Pinochet’s ultimate goal was to stamp out socialism, not just programmatically, but by force. The statist, authoritarian junta persecuted anyone associated with the socialist or communist parties; many were killed, tortured, imprisoned or exiled at the hands of junta (Vanden, Provost 466). Like Allende and others before him, as well as other leaders In South American politics during his time, Pinochet, “commander-in-chief of the army, centralized power in his person…” (Vanden, Provost 466). The transition from Marxism to Pinochet and the Chicago boys didn’t occur simultaneously, rather the “continuing economic decline forced him to look for some new policy alternatives.” (Stephens). It wasn’t until March 1975 that the Chicago boy’s policies had been implemented.   
The market reforms instituted under Chile were congruent to that of Argentinean President Carlos Menem, and were not at all entirely “laissez-faire” or free market. Moreover, the reforms pursued were not to the extent espoused by Milton Friedman, as Jonathan Marshall explains in an 1983 article, “Freidman’s own protégés abandoned laissez-faire economics at certain critical junctures, and these departures, not any maniacal monetarism, produced Chile’s suffering.” (Doherty) This article written in the in early 80’s when Chile was in the midst of a slow economy, most likely due to a restriction and correction of the monetary policy (Doherty). One deviation was pegging the Chilean peso to U.S. dollars in the early 80’s, subsequently overvaluing the peso and hurting exports (like Menem's convertibility law). Another deviation was Pinochet, like Peron and Vargas before him, oversaw a system of corporatism that protected state favored business’ from the competition of the free market in the form of government credit and bailouts (Doherty). 
However, these limited market reforms, in spite of corporatism and devaluation of the peso were reasonable steps in the right direction. Two of which made this possible, monetary stabilization (Martinez) and the other, was giving the means of production (private property) back to the people (Vanden, Provost 466). Private property rights are essential to any world economy and a backbone of neo-liberal market reforms. Economist Dr. Thomas Sowell explains, “For economic activities that take some time, property rights are a prerequisite, so that those who farm or invest in business can feel assured that the fruits of their activities will be theirs.” (Facts and Fallacies 218). Many believe wrongly that property rights only benefit the wealthy, but Sowell delves further and explains that even those without property have a huge stake in private property rights, “if they are to be employed in an economy made prosperous by the presence of property rights.” (Facts and Fallacies 218). Moreover, in the absence of such rights, as seen under the Allende regime, production drastically decreases or ceases altogether. 
Like Milton Friedman, who once proclaimed back in 1962, while discussing individual freedom in economic arraignments, he explicitly states that it is a vehicle to political freedom, ...economic freedom is also and indispensable means toward the achievement of political freedom.” (Friedman 8). Not only did the reforms help Chile, Friedman’s assertion proved to be substantive. The eventual macroeconomic stability in the late 80’s, among other factors, was a large part of the eventual democratic transition in 1990 (Martinez). When Pinochet finally stepped down in 1990, GDP had risen by 40% (in 2005 dollars); by comparison, Peru and Argentina during the same time period, stagnated (Stephens). As of 2010, and a result of their market reforms Chile has become South Americans richest people, with the lowest levels of corruption, lowest infant mortality rate and lowest number of people living below the poverty line (Stephens).

In conclusion, not only are economic freedoms separate from political freedom, they are both components of a greater whole: individual liberty. The only mechanism that protects both the worker and the consumer is competition in a free market. As we have seen in South America, leaders use economic arraignments and coercion to increase their power at the expense of political and economic liberty; both fascism and socialism employ this tactic in similar fashion to achieve the same result. Chile is a unique case in which a military junta, a top down organization, promoted an economic policy that was bottom up. The success of their economic structure in comparison to the Marxist policies before is undeniable. The political atrocities committed by Pinochet are deplorable, yet the neo-liberal market reforms remain today, despite two moderate socialist presidents from 2000-2010, a clear vindication of the Chilean market reform's success (Vanden, Prevost 467-468).


Saturday, October 5, 2013

Marriage, law and practical reasoning

"There is a tendency to think of judges as if they were independent mouthpieces of the infinite, and not simply directors of a force that comes from the source that gives them their authority. I think our court has fallen into the error at times and it is that that I have aimed at when I have said that the Common Law is not a brooding omnipresence in the sky and that the U.S. is not subject to some mystic overlaw that it is bound to obey." -Oliver Wendell Holmes

Perhaps no issue has been more misrepresented by any of the worldviews or “paradigms” more than the gay marriage issue. Most arguments assume fallacious premises when using such terms as “equal rights” or “civil rights”. Marriage does not exist as a right and nor are the rules that apply applicable to same-sex couples. The fight for marriage “equality” does not seem to be only for the privileges afforded to married couples but for a much-needed stamp of approval by government on the rest of society.

Oliver Wendell Holmes once said that the life of the law is not logic but experience and "the word 'right' is the most deceptive pitfalls" and "a constant solicitation of fallacy". There is a reason why benefits are provided to married heterosexual couples and why this union is advantageous for the state. This is in lieu of separate societal differences based on a subjective sense of morality (ideology) or rule of law. State sponsored marriage is beneficial to the state because the potential offspring of a married couple would be better cared for by a biological mother and father than the state, as well as protect the invested time of one the parents (most often the mother). In this sense, marriage is actually more of a restriction of rights rather than a conference thereof. Generally, this meant that the women/mother would raise the child and the man/father would work to support the family. Even in our more liberated age most couples prefer this arrangement.

The idea of alimony was created to protect the woman’s investment in her relationship and discourage the husband from running out on his family. A woman voluntarily gives up her career and accumulation of human capital in order to better serve her family, therefore allowing her husband to maximize his productive capabilities; alimony protects her investment. In some states, if a spouse were to buy a home it would automatically belong to both regardless of whose name is on the title. These “rules of the game” and restrictions were not promulgated by a specific worldview, rather human experience. Marriage existed before the state and was a large part of society before the law, specifically for the reasons outlined previously. The state, recognizing that it has invested interest in the outcomes of these unions allowed benefits (so long as they collect taxes) and protections to couples for their potential to have children. Marriage is at its core a contract protecting the biological, practical and chosen investment of the mother to forego a career to allow her husband to maximize his capital potential in the marketplace within a "traditional" family unit.  

Comparatively, In a private relationship people can come and go as they please and sign any contracts they want in regards to mutual investments. For instance, most business' or individuals that pool resources in order to maximize investment opportunities don't need to be married to protect either parties financial investment (private contracts). Durable power of attorney and living wills give one partner the ability to make choices for the other in cases of medical incapacitation. The "rules" that pertain to married heterosexual unions are only bestowed tax benefits in the sense that they get to keep more of their own money for procreative purposes, yet most of the rules restrict for the very same reasons (as the purpose of all laws are to restrict in one way or another). 

The ratiocination of why marriage has always been defined as one man and one woman was through a posteriori observation by man throughout many millennia in history. Sex between homosexual couples is a behavior that serves only one purpose: pleasure. Sex between heterosexual couples is more than a behavior but a biological process producing human life. The child is not self sufficient for many years and is dependent on the specific roles that both sexes play in his development (optimal development). You can no more apply the rules of marriage to same-sex couples as you can apply the rules of chess to checkers. The state simply has no vested interest in behavior or attraction whatsoever. 

Moreover, the 14th Amendment does not apply to behavior it applies to people. And the very reason for many laws in the first place is to RESTRICT behavior. Same-sex couples have every right to be together and petition their government for redress of grievances and try to obtain the same privileges (as an anti-statist I'm for tax benefits for everyone for any reason). Our constitutional republican system encourages it through federalism in order to maximize liberty. I do not think any one particular worldview is disputing that. However, in California where the same privileges are granted to same-sex couples the crusade to change the meaning of the word through judicial review remains (click here for more on prop 8), therein lies the problem: society/people define words not judges, government officials or the intelligentsia. In our Republican society the law is not created solely to forbid, facilitate or sanctify behavior in which there is no vested state interest.

The government and people of differing worldviews/ideologies have no business meddling with the lifestyles of same-sex couples. In the same respect, homosexuals cannot force the approval of their lifestyle by everyone in society through an abstract change of a definition the government has no business in changing. Moreover, you cannot say that you have a right to your own morals and values then actively try and seek through government intervention the approbation of those with differing morals and values. The idea that these verities are only seen through the prism of a worldview paradigm suggests only an a priori account of the rule of law and human knowledge, when in the absence of demagoguery, ideology or sophistry the construct to maximize liberty and diversity exists within our Constitutional framework.

Friday, August 30, 2013

The Conservatarian or "anti-statist"

(Image Courtesy of Google Images)

There seems to be much confusion regarding the meanings of the many labels ascribed to political theories and ideologies on the right. I want to be careful with the term "ideology" being that it denotes some ideal that does not exist in reality or presuppose violations of natural law by the state, not all viewpoints on the right are ideological. Little discussion will focus on the political left. I don't want to bog down my point with defining the myriad leftist labels, rather solely focus on the political right.

First some basics; the party of the left is the Democratic party, simple enough. However, the root word democracy, contrary to leftist demagoguery, is in and of itself tyrannical. Majoritarianism is using the coercive arm of government to violate the natural rights of the minority. For example, my natural inviolate rights can be violated at the behest of a 51% majority. The rights of the 49% are not considered and are forcibly contravened by either a static or temporary majority (it's irrelevant the exact percentage of the minority and majority, so long as one individual's natural rights are violated). It's no coincidence that the 17th amendment was passed during the beginning of the fabian socialist movement.

Our founders and framers never once considered a democracy nor ever use the term in the Constitution itself. They feared just as much as a monarchy, the tyranny of the majority.

Today, we hear that education is a right, healthcare is a right, marriage is a right, and that it's something one can acquire at the polls. But the fact that these "pseudo-rights" come at the expense of someone else's natural rights by force, is rarely mentioned by either party. The Democratic party is an ideology built on increasing their own power at the expense of the individual through a majority vote, they adhere to party rather than natural law and are willing to violate them at the behest of their ever growing power. Equality is achieved by the have-nots voting for the property of the haves.

The party of the political right is the Republican party. The root word Republic denotes power belonging to each individual, not the majority (in the context of our Constitutional Republic). Government must follow a guideline that protects the sovereignty of the individual, not the majority or the ruling class. I can also elaborate on how the Republican party is not necessarily the party of Lincoln, Coolidge, Goldwater and Reagan, but that wouldn't serve the purpose of this specific explanation and because temporary Republican politicians decide to pervert the party platform does not change the root meaning of the term. I will delve far deeper into those differences later.

There has been little difference between the Democratic party and the Republican party throughout history, both claim to be the defenders of liberty while the growth of government and the subjugation of the individual is their modus operandi. Both are ideologically fixated on maintaining their own power and stranglehold in Washington, earning both the label of statists. The Republicans do not want to change the status quo established by statists from both parties, on the contrary, they want to wield its unconstitutional power. Regardless of party, power is corrupting, rarely in human history have rulers or magistrates willingly gave power back to the individual. There is no longer an opposition party to counter the statists in Washington, DC, excluding a select few.

Take Obamacare for instance, a valid constitutional protection against a temporary majority party line legislation that alienate our natural rights is congress' power of the purse (remember, judicial review is not in the constitution, so checks and balances were put in place for these specific occasions). The Republicans-rather than superfluous repeal votes that they know are not efficacious-can simply defund the law. But why would they, they are agents of the state just as the democrats are. All that matters is appearances as they pander to the ill-informed and apathetic about their ostensible attempts to repeal Obamacare, knowing full well the futility of such obtuse efforts. Remember, the same power this bill gives the Democrats it also bestows upon the Republicans.

The counter-revolution to the status quo of the modern Republican and Democrat statist are those that fight in one way or another for the individual over the state, whether that be by the rule of law (constitutional principles/natural law) or by the laws of economics. Contrary to the ideological premises of the statists, the notion of an individuals rights coming from "our creator" and the rights that affords each individual is far from an idea or an ideal but a demonstrable truth. To satisfy an ideology the state is to coerce the individual and violate their natural rights that are conferred by no man on earth, nor government. In fact, our natural rights have existed far before governments and will certainly outlast them so long as even one individual remains on this earth. Moreover, the essential purpose for the creation of our Republican government was to protect those natural rights from the government itself (through individual sovereignty), our fellow man or from foreign threats of plunder, not to violate said laws using the same power they were given by the people to safeguard them.

adjective 1. holding to traditional attitudes and values and cautious about change or innovation, typically in relation to politics or religion.

Noun 1. a person who is averse to change and holds to traditional values and attitudes, typically in relation to politics.

The label "Conservative" is misleading and a misnomer as it pertains to the evolution of governments throughout history (their insatiable appetite for growth and power and the status quo in the United States for the past century). The conservative is not reactionary but adheres to the principles of natural law, that these shall not be violated under any circumstances whatsoever, whether it be by the state, your neighbor, a foreign country or time. These principles undergird the freedom from the state in the political, economic and civil society and allow for mechanisms that perpetuate the empirically superior free market to flourish above all other dirigiste alternatives. The framers of the Constitution were by no means conservatives but battle hardened liberal "radicals" providing the impetus to promulgate individual sovereignty and Constitutional Republicanism in order to preserve the inviolate rights of man (this, in the broader context of the tyrannical nature of government over mankind throughout history before and after the ratification of the Constitution).

The Conservative sees social/moral issues through the circumscribed construct of the Constitution; these societal moral decisions should be made by the representatives closest to the body politic insofar as the body politic themselves have the most amount of input at the most local level possible (Remember, States are supposed to have plenary power by virtue of the Constitution). Mobility between townships, cities, counties and states promotes political competition amongst governments in much the same manner as competitive capitalism amongst firms (this of course is predicated upon the federal government abiding by its enumerated powers). Competitive government closer to the people disincentivizes tyranny and cultivates diversity. The framers had intended for the federal government to be largely innocuous, especially over the individual. This founding principle is why we have the most diverse and tolerant nation on the face of the Earth, regardless of the interested sophistry of race hustlers and statist demagogues.

The Libertarians beliefs are congruent with that of the Conservative, the belief in a limited role of government into the political and economic affairs of the individual. Minarchism is the verity disseminated by both the Conservative and Libertarian. Whereas the Libertarian sees things more from an economic construct, this does not in any way invalidate the Constitution or the Conservative but yields greater understanding of both. The competitive notion of local and state governments has been elided by the federal leviathan intentionally by virtue of the statist seduced with the allure of self-aggrandizement.

Let us examine our drug policy for instance; the Conservative may not understand nor care about the premise that prohibition of recreational drugs creates a far more lucrative market for said drug, or how the drug war yields higher costs to society than benefits. This is irrelevant in a system with competing local and state governments with proper local and federal representation. The Constitution does not ban drugs, the states or the people do, as we have seen with the alcohol prohibition that ended in 1933 (alcohol prohibition was added to the Constitution than later repealed). The difference is/was the demand for alcohol is far greater than the demand for marijuana. However, this is untrue in Colorado and may be untrue elsewhere, depending on how motivated, interested or incisive the drug user is about going through the proper legislative processes. Do not solely blame the Conservative for the prohibition on drugs, rather the user himself who shows no inspiration to petition his legislator for change.

Drug users seem far more apt and willing to pay the cost of using without changing the law. In other words, the immediate and fleeting high of "fill in the blank" drug is worth the cost that the state has imposed on its usage to the user. To the non-user, the public policy on drug possession and use is of no consequence. The advent of medicinal marijuana cards in some states has made the legalization of marijuana a moot issue as the die hard users are able to acquire a card and have no reason to change the longstanding bans. Legislation much like other products and services respond to demand. An individual of either party that are in opposition to the legalization of drugs simply have to do nothing. Those who are for the legalization in either party, but are not dedicated users or do not use at all would not necessarily benefit enough from their time and effort to petition their representatives for change. The rule of law isn't perfect, but it must adhered to.

I am opposed to the war on drugs, but I'm not opposed to localities banning drugs as they see fit. So long as no one is coerced to live there. Much like a firm, if this policy (at the local level) is unwanted and people move to another locality because of it, the only people that would incur the costs are the body politic that passed the law. Moreover, the loss of tax revenue, jobs etc. would force the locality to lift the ban. This can go either way and applies to myriad legislation. Competition between governments is a good thing. However, much like monopoly in the private sector, monopoly in the public sector can only come from the federal government. When the federal government bans and enforces laws that belong to the states or to the people, they monopolize choice and limit freedom. Mobility is no longer an option for the individual and competition is stifled by force.

I am opposed to any federal ban on Marijuana or anything else for that matter, as they do not have the Constitutional proviso to enforce such a ban. The Supreme Court Decision of Gonzales V. Raich is one of many activist decisions by virtue of perverting the commerce clause at the expense of states/peoples rights.

As for same-sex marriage and abortion (Roe V. Wade is unconstitutional, the tyranny of judicial activism) the Constitution provides a guideline for both. In order to more fully understand that issue from a Conservatarian standpoint you can click here for clarification. You can supplant virtually any other moral issue with same sex marriage so long as it isn't a natural right or enumerated as a federal power by the Constitution.

In the words of Thomas Sowell, "The Constitution of The United States cannot protect us unless we protect the Constituion". Conservatives need to better understand the forces and mechanisms involved in the free market and how that protects individual liberty and limits the authoritative power of the state. Libertarians need to better understand the Constitution and how its protection of natural law is vital to the free market and individual sovereignty. Both Libertarians and Conservatives need to better understand that if we don't stop the statists (in either party) from eroding and obfuscating our Constitutional rule of law, the bastardized economic and political freedom we barely enjoy now in the breach, will seem like a foregone utopian dream.

Monday, August 19, 2013

Barriers to Entry: Why They Hurt the Ancap Position

In my brother's write up entitled Anarcho Capitalism Dogmatism he argues that the economic model for the ancap society is the perfect competition model.  I agree with this assessment for a few reasons, but I recently got into a debate with an ancap about one of the assumptions in the perfect competition model, namely, zero barriers to entry, so I would like to address the arguments in this post.

When debating an ancap there are two common arguments you will hear.  One is that "the market will provide it" and the other is that "we will defund the company we are dissatisfied with and fund a different one that provides better service."  When making these arguments, they will not theorize how the market will provide the good or service, and they will not explicate how they can switch providers if there is currently only one that exists.  This does not mean that ancaps have not theorized about certain issues but when discussing these potential problems with neo-ancaps theory is usually unimportant to them.  This unfortunate characteristic more often than not leads to dogmatic assertions and a priori conceptualization.   

In the debate, I mentioned two things that are noncontroversial economic theories.  One is about natural monopolies and the other is about airlines (my ancap opponent brought up airlines).  The point I made about natural monopolies is that often times it is more efficient to have one utility company to provide a service over a geographic region.  This is because of the extremely high start up costs and they do not reach diseconomies of scale, i.e., it is cheaper for them to provide the natural good to more people than less people.  Thus, the people of this region can get their water at a cheaper price.  To stop this single company from charging obscene prices I posited a solution that a governing agency could hinder them from doing so. (NOTE: I said governing agency, not government.  Could the free market handle this? possibly, however, complications arise.  I think this could be one justified role of a LOCAL government.)

In response to my argument the ancap asserted that there has never been a natural monopoly, claimed I don't know anything about how the market works, and called me a socialist.  It seems as though the original Anarcho-Capitalistic Dogmatism is vindicated once again.  

Now I would like to transition to the point of how airlines have barriers to entry.  The ancap brought up airlines in an attempt to refute my brother's point about the perfect competition model.  This was surprising to me because I believe it actually refutes the ancap argument that people can simply "switch providers".

There are major barriers to entry for airlines.  High costs, few firms, and airlines can control their prices (minus of course some costs like the changing prices of fuel).  These barriers to entry make it extremely difficult for a new firm to enter the market and survive.  This is because one must have a lot of capital to start up a new airline.  With such high costs there is more risk, which in general can discourage investors.   Moreover, with such few firms and their control over the prices it is easy for existing firms to lower prices to cause new start up firms to fail.  (I would like to point out that when I argued this he acted as if it was ridiculous but asserting something to be ridiculous is not the same as proving it.  The argument I was presenting is studied in depth by economists, it is known as the field of Industrial Organization, hence it is the theory of how certain industries are organized)  The problem with the airlines could also be an issue when it comes to a police force or national defense.  The ancaps frequently argue that the market will provide a police force and a national defense but the fact of the matter is that it is hard to switch services when it is a service outside of perfect competition.  This is ultimately why I think ancaps need perfect competition in order for their theory that consumers can switch providers to be plausible.

I would also like to point out that I am not arguing that these potential problems are examples of market failures where the government is needed to intervene.  I am simply pointing out that these situations are much more complex than the ancap would like you to believe.  The assertion that the market will fix it or we will switch providers is much too simplistic for these complicated issues.

Thursday, August 15, 2013

Same Sex Marriage and the Constitution; a Guideline and Analysis.

(Image Courtesy of Google Images)

Some people believe that marriage is a civil right, safeguarded by our constitution, however, the Constitution itself never mentions marriage nor is there any explicit law banning marriage between two individuals of the same sex. THE 14TH AMENDMENT HAS ZERO TO DO WITH BEHAVIOR OR SEXUAL PREFERENCE. The civil war was not fought over what happens in ones bedroom. That argument is old, tried and ridiculous. SAME SEX MARRIAGE IS NOT CONGRUENT TO INTERRACIAL MARRIAGE. Skin color is a far cry from behavior, attraction and choices. (regardless if you think sexuality is a choice or not). 

Let's look at this logically; the notion of marriage as a "right", is a presupposition of the verity that someone else must marry you, by virtue of forfeiture of another individuals liberty to satisfy your "right". Clearly, the only way this right could be fulfilled is by coercion, presumably, (definitely) by government. Moreover, since when do "rights" come at the expense of another indivdual's liberty, is liberty from coercion of one's fellow man not a right? The common fallacy among the left and many libertarians is that this is a "social" issue when it is not at all. Moreover, it's basis as a legal issue merely falls under the scantest penumbra of the law possible, insofar as marriage is a not a privilege conferred by the government; it existed long before the law and government. Marriage was/is a religious union that had and continues to have no definitive relation to the state whatsoever, other than as a TAX STATUTE. (I'm using capitals for emphasis being that for some, this is hard to comprehend). If you want to marry a lamp post, you can, however don't expect to get tax breaks from the state. Everyone is afforded the opportunity to marry, and everyone can, why do you need validation from the state. I hear libertarians arguing that the state should stay out of the "marriage business" as if government grants people the right to get married. If you don't want the state involved you have that option. Marrying anything or anyone without a state license is not a crime! This position is antithetical to the entire notion of libertarianism and in blatant disregard of our Constitutional Republicanism. 

The same-sex marriage debate is sophistry from the get go and is not about rights or government. This is about merely redefining the word, marriage. The only reason the state recognizes a marriage is for TAX PURPOSES ONLY. Not to tell you who, how, when, where and what to marry. There must be a legal statute as to define who would get the benefits. THIS IS NOT ABOUT SEX ACTS, sex between a man and women serves a purpose other than pleasure or love. (obviously, that's why we all exist.) The reason for this is to encourage a man and a women to marry for three reasons: to have children (posterity), to ensure that these children will not become a public charge and from a posteriori perspective of historical human knowledge dating back over a millenia (over 6 to be exact) that a man and a women can more adequately raise children than a one parent household or with two people of the same sex. (there isn't a study in the world today that does not prove this premise). 

Now, I'm not saying that two people of the same sex should not be allowed to adopt, that's not at all what this blog post is about, nor is it about the morality of homosexuality. I could care less, really. My beliefs are mine alone, and I really don't want to know what heterosexuals do in their bedroom let alone homosexuals. Thirteen states in the Union either have domestic partnership laws (afforded the same benefits as marriage) or have redefined the term altogether. That's totally fine and well within their rights to do, exactly what the notion of federalism is for. 

What I do have a problem with however, is how liberals and libertarians think that violating the Constitutional process is a good thing because of their own ideology, zealotry or prejudices.( I guess I understand why Marxists would, just not libertarians) If this issue was so critical and demanded by so many people, why the rush to get five lawyers to coerce and nullify the will of the people. Let's look at the Supreme court ruling in California to get a better idea. Now, if you want same sex marriage, call your representative and lobby for change, you can petition your government, but sooner or later a law you may not agree with could get imposed the very same way, and you'll think twice about the tyrannical methods of politicians and the government.

But I digress...

Some people feel that the Federal Supreme Court should usurp the legislative branch and federalism undergirded by the 10th amendment in order to legalize, top down, same sex marriage. This blog post will discuss the constitutional process that ensures a rule of law procedure protecting the individual from an oligarchy of nine lawyers usurping power that belongs to the States or to the people.
This is not a political argument, as some views have blurred the political lines. It is a legal issue that is only perpetuated by constant distortion of the facts, ignorance of our founding documents and direct opposition by some of our rule of law. In 2000 and 2008 by referendum, the sovereign voters of the State of California voted in favor of the traditional definition of marriage via prop 22 and prop 8 respectively, both confirming/reiterating the definition of marriage; the union of one man and one woman. The body politic of California voted and approved a measure that would be definitively added to their State constitution. These State definitions and statues are solely for the purposes of State tax benefits to married couples, not the legality of private citizens ability to marry one another how they see fit. In other words, two men can marry one another, but under State tax statutes they would not be awarded tax benefits. (However, they are afforded the same tax benefits under the domestic partnership statutes in California.. more proof this is not about rights, but about a word.) 
In the case of Prop 8, opponents of the statute sued and eventually it reached the Supreme Court of California overseen by the Federal 9th circuit court of appeals. During the deliberations of the court the people of California’s representatives refused to argue the very peoples case they were chosen to represent. Jerry Brown, then the Attorney General of California was derelict in his duty as described by Valerie Richardson of the Washington Times:

...The answer: Because Mr. Brown refused to defend Proposition 8, even though part of the attorney general’s traditional job description is to defend state law from legal challenges — including laws with which they disagree.

This would not be the only time Jerry Brown and California’s AG would shirk their duties, as noted in a piece by the Ruth Institute:

The path to this point has been circuitous to say the least…last December the court heard arguments on the case’s merits, but because Governor Jerry Brown and Attorney General Kamala Harris have refused to defend the law, in January the 9th Circuit asked the California Supreme Court to decide whether the Protect Marriage coalition had legal standing to defend Prop 8.
With the slowly changing opinion of the body politic of the United States the Obama Administration after years of defending the law rightly as constitutional, decided to challenge the Federal statute (DOMA) defining the law for Federal tax purposes only. As a tax collecting governing body the Federal government has many tax statutes that are applied and enforced by the IRS under the Department of Treasury. In late March 2013 these statutes (proposition 8 and DOMA) were deliberated in front of the U.S. Supreme Court, reigniting a longstanding national same sex marriage debate.
The same sex marriage debate is easily answered with careful consideration of our Constitution. As seen previously with prior court decisions like Roe V. Wade, many ideologues refuse to let legislation occur how it was Constitutionally mandated to occur; through the body politic via the legislative branch of government. The 10th Amendment of our Constitution is far more lucid than ambiguous, it clearly states: The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people. (US Constitution-Amendment X). A right to marriage is not articulated nor enumerated in the U.S. Constitution so the power to define marriage falls on the states, irrespective of the Federal definition.
The purpose of the 10th amendment is to diffuse the powers of the three federal branches of government amongst the several states. This is only one of the protections included in the Constitution to prevent central planning and ultimately, tyranny.  This amendment affords plenary power to the States and safeguards the liberty of the individual by keeping legislative matters in the representative’s hands that are closer to the people.(the state) Moreover, why should laws passed in a city in Oregon be imposed on a city in Georgia? They are composed of people with differing lifestyles and opinions, none more valid than the other. The 10th amendment safeguards the sovereignty of the people at the local level insofar as protecting their liberty from a ubiquitous federal leviathan.
As for DOMA, a law passed by bipartisan majorities in the House and Senate and signed into law by the President is perfectly and unequivocally constitutional. It is the very process by which our government is to abide by in order to maintain the will of the people. It is not in violation of the 10th amendment because it merely defines marriage a federal statute for the purposes of tax collection. It does not impose its definition on the people/states. (there are hundreds of IRS tax statutes at the federal level).
The same sex marriage proponent’s main charge is that the majority of the American people want to change the definition of marriage to include same sex unions. The main strength of this charge is that the major sentiment towards same-sex marriage is beginning to change in this country, its through this organic reversal of previous majority opinion that legislation can and will be changed through the legislative process. (insofar as this sentiment actually exists) Same sex marriage proponents or supporters should urge their Representatives to introduce and pass legislation recognizing same sex unions. 

Another charge from same sex proponents is constitutional, based on the equal protection clause of the 14th Amendment, Section 1. (U.S. Constitution Amendment XIV Section 1) The 14th amendment guarantees equal protection under the law. The strength of this argument is that the 14th Amendment of the Constitution can give the wiggle room needed to a Supreme court Justice in order to overturn Prop 8 and DOMA, without the need for legislation. This would also be far speedier than the legislative route.
 The fact that the body politic's views on same sex marriage are changing is certainly advantageous towards its proponents cause. However, if this is true, and it may well be, then why try to change the status quo in the Supreme Court composed of nine lawyers that have no business legislating policy issues? What if the court ruled same sex marriage is unconstitutional? That would set a dangerous precedent of jurisprudence that tramples on the rights of states to define marriage as the people see fit. 

We are not ruled by an oligarchy of Supreme Court justices, on the contrary, that’s the very reason we elect legislatures at the federal and state levels. The people decide what is right for their respective State. If New York decides to recognize same sex marriage and California does not, those folks that decide they want a same sex union in CA can move to New York. On the flip side however, if the Supreme Court decides to ban same sex marriage at the Federal level, it would be a violation of their respective States right to decide as well as a violation of individual liberty. It is far easier to move to another state, but much harder to move to another country.
The constitutional argument put forth stands on shaky Constitutional ground as well. There certainly is an equal protection clause in the 14th Amendment; however, this equal protection was added to Constitution as an exclamation point to the Civil War. It was another measure to explicitly state that Black Americans are American and entitled to equal protection under the law. It was in no way related to marriage, or sexual preferences. This also is not a formula for success as far as same sex marriage is concerned; proponent’s arguments should be more focused solely on the rule of law. To equate the same sex marriage debate to race is wholly inaccurate, and disenfranchises the brave black men and women who fought against violations to their natural rights as human beings, already protected by the constitution. They were treated in a brutal, vicious and appalling manner; not coincidentally the treatment was upheld by the very same Supreme court the same-sex lobby is begging for today. 

This argument is not only based on the morality of homosexuality. There is a large amount of people that believe it to be immoral and they have every right to believe that. There is also a large portion of people who believe that homosexuality is perfectly moral and they also have every right to believe that. My views or anyone else’s views should not be imposed on the entire populace by the Federal government. That would by its very nature be Tyrannical, providing for the very purpose of the 10th Amendment or federalism. Ideologues on both sides of the political spectrum get caught up bickering about fallacious arguments because they have little to no knowledge of the law.
We already have a system in place that answers most of the questions to our social, political and civil liberties, yet we choose to ignore it and replace it with our own personal opinions or feelings. Most arguments stemming from either side tend to be sophistical by appealing to emotion rather than a logical conclusion. The rule of law denudes emotion and fosters logic, it undergirds the liberty of the individual by retarding the ideologies or policies of those we may oppose. Federalism retains the right of the people to choose by which laws they wish to be governed.
Charges of bigotry are hurled at opponents of same sex marriage, and it is sometimes equated to racial discrimination. But how can a definition be discriminatory? Are drinking age laws discriminatory towards teenagers? Are polygamy laws discriminatory towards a religion? If one does not like the laws he or she is living under in their State or locality then lobby your representatives to change them, but don’t force people who do not live in your State to abide by the same laws if those people do not feel the same way. It is one thing to fight for what you believe in, but it’s another to force everyone to live by those beliefs via unelected lawyers rather than the people’s lawful representation.
If same sex marriage advocates were serious about promoting same sex marriage, they should lobby the Representatives in those respective states that have not yet changed their definition of marriage, (In most cases this is already happening) Instead of citing the Equal Protection Clause of the Constitution use the 10th amendment because that would be more applicable and advantageous to their cause.
The same sex marriage debate is only debatable in the eyes of the individual’s moral compass, not in that of the law. The Constitution is a document that must be adhered to in order to ensure the liberty and equality of the individual themselves. Most of the debate is predicated upon fallacious premises or slogans and rarely is the proper methodology of the law discussed. 

It is entirely appropriate to either support or oppose the recognition of same sex marriage if it is done legally and amicably and within the confines of valid political discourse. The only side to this argument is the Constitutional one, or should be the only one that matters. It cannot easily be rebutted because it is written very clearly in our governing document, which all politicians take an oath to uphold. What we need is less bickering, fallacy and demagoguery and more of an analytical Constitutional discussion.

A Brief Defense of Economic Models

In this write up my goal is to convince some Austrians that mathematical models aren't as fallacious as they presume.  Before I get into my arguments I must first make this point and it is something that needs to be kept in mind as the readers works through this brief write up. Mathematics, insofar as it is utilized in economic theory, does not predict human action in a deterministic fashion, rather, it captures the laws of human action such that predictions can be made given the constraints of relevant conditions under examination within the theory.

To sum up the Austrian view of models, one could argue that they believe models use false assumptions and lead to fallacious results.  On the Austrian view, models cannot capture human action. I am not bold enough to claim that mathematical models can perfectly capture human action but I do think models are highly useful.  Consider the standard model of supply and demand.  It gives us proper results, is extremely intuitive and a wonderful teaching tool.  Austrians, on the other hand, believe that the assumed continuity of the supply and demand curves are false.  As far as I can tell, this is their primary objection to using this model. According to them, because supply and demand are not continuous it is much more unlikely to reach equilibrium.  I would just like to point out that adherents of this model do not assume that the supply and demand ever actually reach equilibrium, but rather, prices are always adjusting towards equilibrium.

But I digress.

If what Austrians said about mathematical models were true, I would not need to write this because I would probably agree with them.  However that is not the case.  Consider this quote out of one of the leading graduate school micro theory books:
"Imagine that you are trying to explain a particular phenomenon with one of two competing theories.  Neither fits the data perfectly, but the first does a somewhat better job according to the standard statistical measures.  At the same time, the theory is built on some hypotheses about behavior by individuals that are entirely ad hoc, whereas the second is based on a model of behavior that appeals to your intuition about how people act in this sort of situation.  I assert trying to decide which model does a better job of "explaining" is not simply a matter of looking at which fits better statistically.  The second model should gain credence because of its greater validity, which brings to bear, in an informal sense, other data" (Kreps, A Course in Microeconomic Theory, pg 8)
Does this quote seem to fit the Austrian argument that Chicago school economists are stat chasers and do not care about the validity of assumptions?  Quite the contrary actually.  It seems to me that Chicago School economists are concerned about human behavior/theory first and stats second.  I do not see why any economist should have a problem with this method of economics.  As long as the economist will admit some of the draw backs his assumptions might have, why should we completely throw models out the window? Note that when models are introduced through scholarly journals the author will always point out some of its downfalls but explain why it is still useful.

Another reason why I think models are important was touched on in my second paragraph.  Models are helpful learning tools because they are intuitive insights into real world phenomena.  Consider supply and demand again.  If I were to try and explain to someone why rent controls create housing shortages it is to my advantage to draw supply and demand curves and then show the different implications of keeping rent lower than the market clearing price.  It is much easier for the layman to see the consequences as a picture rather than sorting through all the material in their head.  Same goes for tariffs and minimum wage.  I have a hard time explaining why tariffs are bad even to a relatively knowledgeable audience, but as soon as I draw it out for them it clicks.

The last reason why I believe models are important is because even models that are falsified still help us gain knowledge.  This is because learning what assumptions lead to the false conclusions now gives us insight into why these assumptions won't work for future theories.  As long as the economist is trying to encompass human behavior as much as possible and it is fairly explanatory and predictive, why should anyone reject it? Models can have good explanatory power as to why things happen and to what will happen.

Lastly I would just like to point out this is barely scratching the surface of how much theory and thought goes into what makes a good economic model.  To simply reject these ideas based off of the use of models alone is preposterous

Tuesday, August 13, 2013

The Tyranny of Corporatism

(Image Courtesy of Google Images)

Most of today’s economic and political discourse has been promulgated by the interested sophistry of government and myriad interest groups, more prominently, business and labor. Moreover, these selective group interests conflict with the interests of the individual and limit the natural market protections for the individual laborer and the consumer. The only mechanism that protects both the consumer and the worker is individual self-interest by virtue of competition between firms for their products and services. Both corporations and unions can only benefit from the tacit cooperation with government to limit the competitive forces of the marketplace on both the input and output ends of production. Therefore, aligned with government and their coercive power, special interests privatize the profits and socialize the costs. Far from being a partisan issue, both Republicans and Democrats work similarly on both ends of production.

Corporatism is beneficial to politicians of both parties. Every business/organization wants to succeed, whether it creates a product or service the public demands or not. A pure free market system of profit and loss benefits only the consumer and those businesses that turn a profit. This creates demand by floundering businesses and or labor, for favorable political support against market forces, i.e. competition, that otherwise would not survive. Their rallying cry is usually “unfair competition” from other firms, or the preservation of the jobs in that particular firm or industry (also the argument for protectionism). Of course their only concern is their own business or their own job, congruous to the concerns of government and the politician, creating a perpetual partnership between both special interests and government that is antithetical to the self-interest of the individual. Eventually, the interested sophistry of special interests and government is promulgated and repeated by the politicians that benefit from their increased influence over the marketplace.

In the words of Adam Smith nearly two and half centuries ago, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.” (The Wealth of Nations. Book I, pg. 12) The self-interest of the individual is what makes this country and our economy strong, it allows for the freedom of the individual to choose whatever economic arrangement best suits the needs of himself and his family, allowing for maximum freedom in the marketplace, as long as competition exists as a check. These arrangements work towards two ends, political and economic freedom. As Milton Friedman once wrote, “Freedom in economic arrangements is in itself a component of freedom broadly understood, so economic freedom is an end in itself… Economic freedom is also an indispensable means towards the achievement of political freedom.”(Capitalism and Freedom pg. 8).  An American citizen under various state laws may be unable to join an occupation such as law (BAR association) or medicine (AMA) without a state issued license, surely is deprived of freedom.(state licensure) Moreover, under federal commerce laws, the dairy farmer that cannot sell raw milk or the wheat farmer that cannot grow the amount of wheat he would like, are not without deprivation of their freedoms from the state.

There is an intimate relationship between economic, political and civil freedoms. Political freedom is the absence of force or coercion by man of his fellow man. The fundamental threat to freedom is the use of force by any central authority, or the forced will of the temporary majority over the minority. Civil liberties are best outlined by the Bill of Rights, private property being the cornerstone of all economic arrangements; if one were unable to reap the rewards of his labor, this would limit the incentive to work at all. As Thomas Sowell rightly points out, “For economic activities… property rights are a prerequisite, so that those who farm or invest in business can feel assured that the fruits of their activities will be theirs. “ (Economic Facts and Fallacies pg. 218). By keeping the economic arrangements out of the hands of the politicians and in the hands of a free people, diffuses the power of the government. Moreover, it limits the possibility and plausibility of coercion by the state over the individual. This verity directly correlates to less power for government politicians and bureaucrats, and although the need for politicians will continue to remain, this threatens the existence of and size of the bureaucracy altogether, and thus is anathema to those individuals in the bureaucracy.

We often think of politicians/government as looking out for the best interest of the people as a whole. Rarely do we think of politicians or government as looking out for their own self-interest, political power and longevity. Rarely, throughout human history do we see governments advocating for less power and less influence over the body politic (one rare instance being the Constitutional convention). What power would a politician have in government under the function of purely free market forces, in lieu of government intervention via regulations, what is now called “crony capitalism” or more aptly called corporatism. Both Republicans and Democrats are famous for employing this strategy for their own interests. Most notably, and the brain trust of the Republican party, the U.S. Chamber of Commerce is famous for its support of Republican politicians and the corporatist interests of the business community.

It is in the best interest of both the politician and the bureaucracy to grow and increase their power, otherwise risk losing their jobs. “Crony capitalism” is a phrase that refers mainly to business interests. Businesses will kick back money to politicians for campaigns, which serves their interests, and in return business will receive favors from government in the form of permits, grants, tax breaks or even subsidies and bailouts. Businesses that would otherwise fail due to competition in the marketplace as a result of either high prices, inferior products or a shift in demand can now do business in perpetuity on the taxpayers dime.

The success and subsidization of business is in the self-interest on the politician that receives the funds the business otherwise does not have to spend, essentially at the expense of the taxpayer, solely for the interests of the politician and the business. One cannot blame businesses for trying to limit the repercussions of competitive capitalism, the only market force that protects the individual at the expense of bad business; after all, a pure free market is a profit and loss system. Losing sucks for those involved and invested in a particular business, no doubt, but this type of corporatism limits the market for competitors and discourages entry of a firm that could offer better quality, lower prices or both to the consumer. Moreover, the government has initially taken money from the individual (through the power of taxation) with the threat of force, and used it to benefit a business he or she otherwise would not patronize. Thus, the self-interest of business and government through coercion, violate the rights of the individual for their own personal gain. Not only does this stifle competition and hurt the consumer, it also limits the amount of money the taxpayer has to spend. Unfortunately, business has far more company in its collusion with politicians and government.

Corporatism is favorable treatment not just to business, but to other special interest groups that otherwise would not succeed in the market or want to limit the competitive threat to their products or services using the coercive force of government. Labor unions operate in a similar fashion, insofar as their control over input. Most, if not all big labor unions heavily support the Democratic party on the national level. However, Republicans are also guilty of favoring unions at the local level for much the same reasons. In order to earn higher wages, in the absence of increased production or demand, labor unions must restrict the input for that particular firm or industry. The higher wages and benefits earned by the union come at a cost to the non-union laborer, concentrating the benefits and dissipating the costs, respectively. Due to the higher costs paid by a firm to their union employees (above and beyond their actual production) less access to a particular trade or firm is afforded to non-union laborers, mitigating the competition and thus decreasing the pool of human capital with the necessary skills to compete for jobs elsewhere in the marketplace.

Although, unions certainly have the right to free assembly and in my opinion most certainly should, union membership should always be voluntary; this is not the case in many state and local governments or in a closed shop (or union shop -whatever terminology unions use to circumvent the law and exploit labor). A union member must pay dues; these dues are in turn contributed to politicians that will favor union policy, and in the case of most public unions, come at the expense of the taxpayer. The greater the union membership, the more money can be kicked back to a politician, increasing the power of the politician in exchange for increased wages and benefits, at the expense of non-union labor. Unions concern lies invariably with dues paying members, and their own self-interest in the same way corporations are with their (voluntary) shareholders, and through the coercive force afforded only to the government, they collude and limit the freedom and choice of the individual in the marketplace.

There is however, one huge difference in business colluding with government and labor colluding with government insofar as a corporation/business can certainly put their hand in the taxpayers till, however they still cannot coerce demand. For instance, government can subsidize the car company Fisker all it wants without my consent, but for the time being, it cannot force my hand in purchasing said vehicle. On the other hand, unions coerce participation by only allowing members to retain their jobs, collecting dues regardless of the opinions or predilections of the individual laborer with little to no accountability to the union representation. What kind of freedom is that? And what system is really exploiting the “proletariat”? The power afforded to these businesses, unions and politicians by government (not capitalism) are the very reason so many economic myths are perpetuated and promoted by statists, and naturally politicians’ and bureaucrats. (Union PR, corporate PR, and government PR) The concentrated focus, organization and incentives of these special interests and politicians are an advantage over the dissipated costs to the much broader taxpaying public. 

One of the major objectives of this blog is to dispel these myths and reintroduce logic and empirical evidence in the prevailing economic discussions and debates throughout the media, the intelligentsia and academia.