Subjective Value: A Proof by Example

The theory of subjective value, which is a cornerstone of microeconomics, says that

value is not inherent in things. There may be objective proxy-measures of value—like market value—but these depend primarily on the subjectivity of the individuals who make the choices. The prices of things, in other words, result from people’s subjective valuations of things.

When a 92-year old survivor of the Great Depression says something like “no car is worth $30,000,” he thinks that he’s stating an objective truth. In fact, he’s only saying something about the amount that he’s willing to pay for an automobile, which is somewhere south (probably way south) of $30,000.

Here’s a homely proof by example of the theory of subjective value. I’m wearing a pair of warm crew socks on this cold morning. I’ll be wearing those socks when I drive to the post office to mail a letter. (It’s an important letter, and I don’t want to wait for our mail carrier to pick it up at our curbside mail box.)

I won’t have to stand in line to mail my letter, but there will be a line of people who are waiting for window service. If I walk up to the line and ask everyone in it if they’d like to buy my crew socks, most of them will think I’m nuts and ignore me. If a sporting soul were to ask me how much I want for the pair, I’d say $20. That’s a lot more than I’d have to pay for a replacement pair, but I’d have to remove my shoes, remove my socks, don my shoes, walk out into the cold minus the comfort of warm crew socks, and go to the trouble (sooner rather than later) of buying a replacement pair.

The sporting soul, on the other hand, would probably laugh and say “no thanks.” He’s probably already wearing socks, and doesn’t need a pair at the moment. Even if he didn’t mind handling socks that I’ve been wearing, he’d have to be an unusual person to pay $20 — or even $1 — for a pair of used socks that he doesn’t need at the moment.

That’s subjective value for you. Each of us has a “price schedule” that depends on our constantly changing tastes, preferences, and circumstances. Nothing has a “correct” price. For everything that changes hands at a particular price because buyers and sellers happen to be willing to transact at that price, there are many, many things that don’t change hands because of differences in the valuations placed on them by buyers and sellers.

The Great Recession is Over

No, it isn’t. See this post.

Competition Shouldn’t Be a Dirty Word

Paul Krugman, a defunct Keynesian, certainly isn’t the first person to decry competition. Krugman’s motive is somewhat different than the motives of others who think of competition as a dirty word, so let’s get Krugman out of the way.

Krugman’s ideal world is one in which the great socialist collective operates under the guidance and tutelage of his omniscience, which extends beyond his former discipline of economics into all aspects of human endeavor and the psychological underpinnings thereof. How else could he know, for example, that Republicans are unremittingly evil and the cause of all evil, not excluding the acts of mad men. Krugman’s problem, of course, is his heavy emotional investment in statism, which leads him to respond like Pavlov’s dog (slobbering and all) whenever anyone says an unkind or even doubtful word about the state’s wisdom or beneficence.

Enough of Krugman, as I once said, prematurely. Onward to competition, that dirty word.

Why is it dirty? First, thanks to “thinkers” of Krugman’s ilk, the word has acquired an adjective, which one hears in one’s mind even when it isn’t attached to the word by the person who uses it. The adjective is cut-throat. Cut-throat competition

refers to situations when competition results in prices that do not chronically or for extended periods of time cover costs of production, particularly fixed costs. This may arise in secularly declining or “sick” industries with high levels of excess capacity or where frequent cyclical or random demand downturns are experienced.

In other words, the term cut-throat competition has nothing to do with rapacious behavior. It is simply a picturesque description of a situation in which some firms are bound to fail, leaving survivors whose behavior should be characterized as persevering, not cut-throat. “Cut-throat” has nevertheless become ineradicably associated with “competition,” which has thereby acquired a strongly negative connotation among “average” persons, defunct Keynesians, the mainstream media, and “liberals” in general.

The other negative connotation of competition is its association with zero-sum games. In the extreme, there is gladiatorial, death-to-the-loser combat. In the somewhat less violent entertainments of the present epoch there are season-ending, winner-takes-trophy events: the Stanley Cup playoffs of ice hockey, the World Series of baseball, the Super Bowl of football, and so on, unto the Little League World Series and who knows what else.

The “average” person (Average Joe) enjoys winner-takes-trophy events and movies that employ death-to-the-loser plot devices, even as he deplores economic competition. That is so because competition as entertainment reinforces the view that competition inevitably generates losers. And yet, the competition of the arena — in its modern, non-lethal incarnations — isn’t really about the winner taking all. The winner takes a trophy and some extra moolah, but the losers — even the members of the teams that finish last and never get to post-season play — don’t lose. In fact, they earn rather nice salaries (often stupendous ones), usually for many years before their declining skills cause them to yield (gracefully or otherwise) to younger players.

Average Joe — unlike the athlete, aspiring performer, or trial lawyer — doesn’t like to think that he is in some kind of competition when he goes to work every day. But he is, even if his work doesn’t involve an explicit contest with, say, a co-worker to see who can throw a football more accurately in the face of charging defensive players, write the best computer program, serve the most customers, turn out the most readable technical manuals, and so on.

The element of competition in the workaday world is unavoidable, not only for the workers on the front lines but also for those in the back room. It is also inevitable for bosses all the way up the chain of command, and for financial backers (whose ownership shares and and loans are on the line).

The element of competition arises because of consumer sovereignty. In the final analysis, it is up to producers (workers, bosses, and business owners) to satisfy consumers — who are also producers. Every instant of every day there are changes in tastes, preferences, technologies, production methods, and other factors that determine the characteristics, quantities, and prices of goods and services that are bought and sold, and thus the rewards to those who are engaged in the production and financing of those goods and services. All of that constant change takes place in an economy that is generally growing, and some sectors of which grow even as others sink into recession or depression. Growth does not eliminate or soften competition because, when the veil of money is stripped away, growth depends heavily on the addition of resources (labor and capital of various kinds), which must be rewarded in accordance with the value of their contributions to economic output. Whether or not the economy is growing, the earnings of producers (and, therefore, their opportunities to consume) depend on their ability to satisfy consumers, who have myriad choices about how to allocate their incomes. In turn, the incomes of every economic actor, from janitor to chairman of the board to multi-billionaire shareholder, are determined by their respective contributions to consumer satisfaction.

The outcome of competition, contrary to the connotations of the word, isn’t a tally of winners and losers. Every “player” is a winner because he is rewarded, to some degree, for his efforts. The notion that there are winners and losers arises, wrongly, from the assumption that everyone is entitled to the same reward, regardless of how valuable his contribution is to others. “From each according to his ability; to each according to his needs” is a long-discredited economic philosophy that leads to less for everyone (politicians, bureaucrats, and their favorites excepted). A low-income wage-earner may envy a Warren Buffet or Bill Gates (though that envy seems not to extend to the wage-earner’s favorite, highly paid athletes), but envy is in such ample supply that it is worthless, except when politicians decide to reward it, in the name of (cheap) compassion.

Which brings me to the political side of the story. It is the inevitability of competition — and the unwonted fear of it — that leads individuals and groups to seek shelter from it. Moreover, the general perception of competition as “bad” makes it easier for government to usurp private functions and set up in their place nearly impregnable bureaucracies. As a result of these impulses and perceptions, almost every product and service is made more costly by regulatory restrictions, licensing laws, import restrictions, tariffs, pro-union legislation, affirmative-action laws (which raise production costs by forcing employers to hire and promote second-best employees), and so on. At the same, the ability of consumers (as voters) to remove the politicians and bureaucrats responsible for such depredations is inhibited by civil-service regulations (which protect incompetent bureaucrats from more than mere changes of administration) and campaign-finance laws (which were designed by incumbents to protect their incumbencies).

All of this comes at a high cost to those Americans who must actually compete in the real economy. Average Joe doesn’t lose because of competition, he loses because so many of his fellow Americans have succeeded in insulating themselves from it. Therein lies true greed.

In summary, competition is a great thing. By rewarding invention, innovation, risk-taking, education and training, hard work, and all of the other things that contribute to economic growth. competition enables us — all of us — to enjoy a higher standard of living. And we would be much better off they we are if there were fewer individuals sitting on the sidelines, watching the competitors and taking an unearned cut of their earnings.

There’s nothing wrong with competition but the connotations it has acquired. It shouldn’t be a dirty word.

Points of Agreement and Reinforcement

Scott Lincicome, Don Boudreaux, and Mark Perry continue their stalwart defense of free trade (latest entries here, here, and here). The controversy revolves around the notion prevalent in “liberal” circles that exports are “good” and imports are “bad.” This is an old view, which Henry Hazlitt addressed in Economics in One Lesson:

(From the 1952 edition. Originally published in 1946).

I couldn’t agree more with Lincicome, Boudreaux, Perry, and Hazlitt — as you will see if you go here, here, and here.

John Goodman keeps tabs on the abomination known as Obamacare. His many post-enactment observations about Obamacare include these:

Docs Declare “No Confidence” in AMA, Exercise as Anger Management, and the Upcoming Nursing Shortage
Doctors are Leaving Medicare
Who is Going to Provide the Extra Care?
Selling Health Reform to the Victims
The Coming Doctor Shortage
Victims of Health Care Reform

None of this comes as a surprise to me. I warned against Obamacare in several pre-enactment posts:

Rationing and Health Care
The Perils of Nannyism: The Case of Obamacare
More about the Perils of Obamacare
Health-Care Reform: The Short of It

Goodman also offers a tantalizing post about the idea of testing public policies before they are fully implemented. The idea of testing public policies is one of the arguments for true federalism, where the central government has a hands-off policy on economic and social matters (but not civil rights). Only true federalism — which this nation enjoyed (more or less) until the subversion of the Commerce Clause by the Interstate Commerce Act — will dispel the “anger” toward the central government that deeply, and justly, animates a large number of Americans.

Big-government advocate Linda Greenhouse now opposes broadly worded delegations of power to subordinate authorities, because the broadly worded power, in the present instance, would

authoriz[e] the secretary of Homeland Security to “waive all legal requirements” that the secretary, in his or her “sole discretion, determines necessary to ensure expeditious construction of the barriers and roads [comprising the border fence project].”

The writer of the quoted article notes the irony in Greenhouse’s present position. It puts her on the side of Judge Douglas Ginsburg, who argued against broad delegations of congressional authority in “Delegation Running Riot” (Regulation, 1995, no. 1), where he coined the term “the Constitution-in-exile”:

So for 60 years the nondelegation doctrine has existed only as part of the Constitution-in-exile, along with the doctrines of enumerated powers, unconstitutional conditions, and substantive due process, and their textual cousins, the Necessary and Proper, Contracts, Takings, and Commerce Clauses. The memory of these ancient exiles, banished for standing in opposition to unlimited government, is kept alive by a few scholars who labor on in the hope of a restoration, a second coming of the Constitution of liberty-even if perhaps not in their own lifetimes.

All of which reminds me of an old post of mine about the Constitution in exile.

Obama’s New Regulatory Regime

Eric Posner, writing in The New Republic (“Obama’s Cost-Benefit Revolution“), comments on Obama’s new executive order about cost-benefit analysis and regulation. Posner offers some background:

Long ago, cost-benefit analysis was a rallying cry for conservatives. It was brought to government by none other than Ronald Reagan, in Executive Order 12291 of 1981. Reagan was riding the wave of the deregulatory movement, which held that regulation of industry was excessive and stunted economic growth. His order stipulated that agencies should issue regulations only after finding that the benefits exceeded the costs.

Outraged liberals charged that cost-benefit analysis was a pretext to stifle regulation, and that it was arbitrary because of the difficulty of attaching dollar values to lives, environmental goods, and other regulatory benefits. Conservatives replied that cost-benefit analysis blocks bad regulations: Why would one support a regulation that produces higher costs than benefits? At the time, the alternative was regulation that seemed to reflect no more than the instincts of bureaucrats (or the agendas of interest groups), accompanied by impenetrable bureaucratese. The debate continued in this vein for decades, but over time, positions shifted. Some liberals came to see cost-benefit analysis as a good-government tool that promotes transparency and accountability, while some conservatives began to wonder whether it confers legitimacy on the New Deal state.

Cost-benefit analysis — even when it is done well — is a sham. But Obama’s approach (an extension of Clinton’s) reveals it as a scam:

Now, the press has reported that Obama’s executive order, which explicitly renews Clinton’s, signals victory for business. But the executive order also provides plenty of wiggle room that can be exploited by pro-regulatory forces, as indeed did Clinton’s before it. Unlike Reagan’s original order, which simply asked agencies to perform cost-benefit analysis, Clinton’s allowed agencies also to take account of “equity.” Obama’s adds that agencies should take account of “human dignity” and “fairness,” values, it helpfully notes, that are “difficult or impossible to quantify.” This is problematic because quantification is the point of cost-benefit analysis. Cost-benefit analysis works in the first place only because it imposes mathematical discipline on agencies. They must supply evidence that a proposed regulation has certain benefits and costs, monetize those benefits and costs, and report a number. If the number is greater than zero, then the agency may regulate. If agencies can instead point to unquantifiable benefits such as the promotion of human dignity, they can do whatever they want, and the main selling point of cost-benefit analysis—government transparency—is eliminated.

The sham to which I refer above is this:

One person’s benefit cannot be compared with another person’s cost. Suppose, for example, the City of Los Angeles were to conduct a cost-benefit analysis that “proved” the wisdom of constructing yet another freeway through the city in order to reduce the commuting time of workers who drive into the city from the suburbs. In order to construct the freeway, the city must exercise its power of eminent domain and take residential and commercial property, paying “just compensation,” of course. But “just compensation” for a forced taking cannot be “just” — not when property is being wrenched from often-unwilling “sellers” at prices they would not accept voluntarily. Not when those “sellers” (or their lessees) must face the additional financial and psychic costs of relocating their homes and businesses, of losing (in some cases) decades-old connections with friends, neighbors, customers, and suppliers. (This is from “Greed, Cosmic Justice, and Social Welfare“; see also “Modern Utilitarianism.”)

Throwing “equity,” “human dignity,” and “fairness” into the equation takes us from sham to scam. As Posner says, “[t]hese wiggle words … might be licenses to agencies to regulate however they want to.” There’s no “might” about it.

Well, there is a kind of “might” about it. The might of government regulators to force their preferences on us.

Build It and They Will Pay

Michael Messner, an investment-fund manager, writes:

More than 150 years ago, America’s greatest landscape architect, Frederick Law Olmsted, created Central Park and changed New York forever. He went on to transform dozens more cities, leaving a priceless legacy of vibrant, beautiful cityscapes. And, in the process, he increased property values.

Olmsted discovered this himself when he tracked the value of land around Central Park and found that the city’s $13 million investment had led to an astounding $209 million increase in just 17 years. The architect recognized what many planners still fail to grasp: Parks and managed green space are vital pieces of urban infrastructure that not only improve the quality of life for millions of people but also drive economic growth….

We don’t have the luxury of vacant land that Olmsted often started with, so we must bulldoze underperforming and underused property, put people to work creating parks on some of the land and “bank” the rest until the economy recovers.

Beginning with Atlanta, Georgia Tech is researching what is needed to accomplish this in 12 major cities. The project is known as Red Fields to Green Fields. Under this plan, some of the abandoned or underutilized property would be acquired by a parks agency or by public-private partnerships, which would then begin demolition, park design and construction, putting people to work immediately. More jobs would come as the improved areas attracted development….

The banking system and the federal government could play an important role in this effort. Rather than backstop bad real estate paper, the Federal Reserve, the Federal Deposit Insurance Corp. and the Treasury Department could help finance the acquisition of excess commercial real estate through a land bank fund. Instead of buying mortgage-backed securities, why couldn’t the Fed buy excess developed real estate to be held as green space through “land-backed securities”? Why couldn’t the FDIC give some of the useless properties it obtains through bank closures to land banks or nonprofit organizations? With the right financing structure, philanthropic entrepreneurs could use leverage to remake America just as some of our bad developers used easy bank financing to help create the excesses. (“Olmsted’s ideas could help solve our real estate mess,” The Washington Post, January 6, 2011)

In other words, why not bestow parks and green spaces on selected urban areas at the expense of every taxpayer in the United States?

What’s wrong with that idea? Plenty. Let’s start with Messner’s financing scheme. The money for a land bank fund has to come from somewhere, and that somewhere, when you get down to it, is taxpayers’ pockets. The Fed’s purchase of “excess” real estate probably would be accomplished by, in effect, printing money, thus burdening taxpayers (and others) with the hidden tax of inflation. Regarding the idea of an FDIC giveaway, it’s evident that Messner thinks that developed properties have no market value just because they’ve been abandoned. But that’s not so, and any market value that they do have is owed to the taxpayers of the United States, for which the FDIC is merely an agent. I don’t know how the Treasury could help to finance the purchase of “excess commercial real estate” (whatever that is) without imposing a tax burden (or its Ricardian equivalent) on Americans. (Perhaps Messner believes that the money in the Treasury is a gift from the Tooth Fairy.) Finally, Messner’s superficially reasonable proposal is bound to be used as justification for efforts to spend tax dollars, at the State and local levels, if not at the federal level.

Let’s turn to the supposed benefits of Messner’s proposal. His essential claim is that the cost of beautification is returned many-fold in the form of higher property values (for the owners of neighboring properties) and vague promises of economic growth and a better quality of life. I’ve blogged elsewhere (here and here) about the fundamental flaw of cost-benefit analysis, as it is applied to government projects. The flaw is this: Most of the benefits don’t accrue to those who bear the costs. So the creation of a park causes a rise in the value of the land around it? So what? If I don’t own some of that land, all I get out of it, except for an occasional visit to the park if it’s close to me, is a higher tax bill.

Messner’s proposal, if adopted, would be a classic case of collusion between “bootleggers and Baptists.” How does that work? The bootleggers (those with a vested financial interest) are the owners of properties near the proposed site of a park or green space. The Baptists (the do-gooders) are the politicians, planners, and others who think it would be nice if the people of city X have access to a new park or green space. (Messner, in this instance, may be a bootlegger and a Baptist.)

In the case of Messner’s scheme the bootleggers and Baptists would be getting richer and feeling better about themselves, while they victimize the vast majority of individuals who would (a) pay for the creation of parks and green spaces but (b) derive little or no benefit from them. There’s an exact analogy with tax-funded venues for professional sports teams. Such venues benefit owners and bring satisfaction to “civic minded” leaders, the small minority of citizens who actually attend games, and the somewhat larger minority of citizens who gain psychic income from having (or retaining) a local team. But, as many studies have shown, tax-funded sports venues don’t create jobs or spur economic growth (for reasons I discuss below).

It may be true, as Messner asserts, that the creation of parks and green spaces would “improve the quality of life for millions.” But it would be true only for those millions who are getting more than their tax-money’s worth of enjoyment from the parks and green spaces that they helped to pay for. Many more millions would not get their tax-money’s worth of enjoyment from those parks and green spaces. Moreover, taking money from me to improve my “quality of life” signifies rank presumption about my values and preferences.

What about economic growth, which Messner also invokes? Well, the creation of parks and green spaces, in addition to requiring land, also requires the use of various types and quantities of labor and capital. If Messner is implying that economic growth would result from the use of unemployed labor and capital, he’s relying on a discredited Keynesian theory. A piece of land is removed from a potentially productive use; the associated labor and capital are devoted to the creation of something (a park or green space) that doesn’t result in greater productive capacity. And as the economy recovers while the land, labor, and capital are diverted to the creation of parks and green spaces, the land, labor, and capital are unavailable for use in the production of consumer goods and productivity-enhancing capital goods. I’m at a loss to understand how the creation of a park or green space contributes more to economic growth than the alternative uses of the same resources by the private sector. It seems to me that the tax-subsidized creation of parks and green spaces can only reduce the rate of economic growth. (Perhaps the productivity of workers is enhanced greatly, and magically, by the knowledge that there is now a part or green space to which they can repair for rest and relaxation. Hah!)

In summary, there’s no free lunch. When tax money is used to raise property values and improve the “quality of life” in one place (or a bunch of places), those higher property values and improved lives are paid for by lower property values and economic deprivations elsewhere — and by reduced economic growth for almost everyone, except the “bootleggers.”

“Intellectuals and Society”: A Review

Thomas Sowell‘s Intellectuals and Society is a rewarding and annoying book.

The book is rewarding because it adds to the thick catalog of left-wing sins that Sowell has compiled and explicated in his long career as a public intellectual. When Sowell criticizes the anti-gun, soft-on-crime, peace-at-any-price, tax-spend-and-regulate crowd, he does it by rubbing their noses in the facts and figures about the messes that have been created by the policies they have promoted.

Having said that, I must also note the ways in which Intellectuals and Society annoys me, namely, that it is verbose and coy about the particular brand of intellectualism that it attacks.

VERBOSITY

Regarding verbosity, here is a randomly chosen example, from page 114:

Abstract people are above all equal, though flesh-and-blood people are remote from any such condition or ideal. Inequalities of income, power, prestige, health, and other things have long preoccupied intellectuals, both as things to explain and things to correct. The time and effort devoted to these inequalities might suggest that equality is so common or so automatic that its absence requires an explanation. Many intellectuals have approached equality in much the same spirit as Rousseau approached freedom: “Man was born free, and he is everywhere in chains.” To much of the modern intelligentsia, man is regarded as having been born equal but as having become mysteriously everywhere unequal.

Which means:

The notion of equality propounded by left-wing intellectuals bears no relation to the reality of the human condition. But the false ideal of equality enables leftists to advance the notion that disparities of income, power, prestige, and health (among other things) are injustices that call out for correction.

There are other ways of saying the same thing — all of them equally concise and therefore easier for the reader to grasp. Dozens, if not hundreds, of other passages in Intellectuals cry out for the same kind of ruthless editing. With that done, the book would be more compelling, because the facts and figures that make Sowell’s case against leftist intellectuals would stand out more sharply.

THE TRUE SUBJECTS OF THE BOOK

This brings me to the “intellectuals” who are the subject of the book. Sowell’s definition of intellectuals is so broad that it includes him and others of his ilk:

Here “intellectuals” refers to an occupational category, people whose occupations deal primarily with ideas — writers, academics, and the like. Most of us do not think of brain surgeons or engineers as intellectuals, despite the demanding mental training that each goes through, and virtually no one regards even the most brilliant and successful financial wizard as an intellectual.

At the core of the notion of an intellectual is the dealer in ideas, as such — not the personal application of ideas, as engineers apply complex scientific principles to create physical structures or mechanisms. A policy wonk whose work might be analogized as “social engineering,” will seldom personally administer the schemes that he or she creates or advocates. That is left to bureaucrats, politicians, social workers, the police or whoever else might be directly in charge of carry out the ideas of the policy wonk. (Intellectuals and Society, pp. 2-3)

Sowell’s definition encompasses thinkers who devoted much (or all) of their careers to combating the kinds of statist policies advanced by the left-wingers who are the real targets of Intellectuals and Soceity. Sowell even mentions two anti-statist intellectuals — Friedrich Hayek and Milton Friedman — in the first chapter of his book, in a context which suggests that they are among his targets. But Sowell later invokes Hayek, Friedman, and other “conservative” intellectuals as he confronts left-wing ideas and their consequences.

There can be no doubt that Sowell’s fire is directed at left-wing academicians and pundits — and their enablers in political-bureaucratic-media complex — for the many good reasons documented in the book. A truth-in-packaging law for book titles — a left-wing idea if ever there was one — would require the renaming of Intellectuals and Society to Left-Wing Intellectuals and the Dire Consequences of their Ideas.

My aim is not to quibble with Sowell’s title, but to lament his lack of clarity about which set of intellectuals he is attacking, and why that set of intellectuals deserves reproach, whereas Hayek, Friedman, and company do not. Surely the author of Intellectuals and Society — who is, by his own definition, an intellectual — does not mean to denigrate his decades of research and writing in the service of liberty. (This is not to say that conservatives and self-styled libertarians are above reproach; they are not, as I show elsewhere in this blog. But left-wing “intellectuals” deserve a special place in hell for their contributions to the destruction of the social fabric and demise of liberty, which Sowell so thoroughly documents.)

THE LEFT AND ITS ILLUSIONS

Now for the meat of Intellectuals and Society. And beneath an over-abundance of dressing, there is plenty of meat. Sowell draws on his own work and that of many distinguished philosophers and scholars as he puts the lie to left-wing ideas and policies. Thus we find the likes of Gary Becker, William F. Buckley Jr., Edmund Burke, Richard Epstein, Friedman, Hayek, Eric Hoffer, Paul Johnson, Jean-Francois Revel, Adam Smith, and James Q. Wilson pitted against left-wing stars of the past and present, including Louis D. Brandeis, Noam Chomsky, the Clintons, Herbert Croly, John Dewey, Walter Duranty, Ronald Dworkin, Paul Ehrlich, William Godwin, Edward Kennedy, Paul Krugman, Harold Laski, Roscoe Pound, Jean-Jacques Rousseau, Arthur M. Schlesinger Jr., George Bernard Shaw, the Webbs, and H.G. Wells.

Because of the timing of the book’s publication, Barack Obama makes only a cameo appearance as a senator who opposed the surge in Iraq:

[Obama] said in January 2007 that the impending surge was a “mistake that I and others will actively oppose in the days to come.” He called the projected surge a “reckless escalation,” and introduced legislation to begin removal of American troops from Iraq no later than May 1, 2007…. Another 20,000 troops [Obama said] “will not in any imaginable way be able to accomplish any new progress.” (p. 268)

Intellectuals and Society does not directly address the “highlights” of Obama’s presidency to date: “stimulus” spending, Obamacare, and new financial regulations. But they are merely new manifestations of old policies that — among others — the book amply discredits.

But I am getting ahead of myself. The hunt for left-wing error begins in earnest with “Knowledge and Notions,” Chapter 2 of Intellectuals and Society. There, Sowell highlights some leading tendencies of left-wingers. There are the experts in particular fields who act as if their expertise gives them license to expound on any and all subjects. Appositely, Sowell quotes Roy Harrod on John Maynard Keynes:

He held forth on a great range of topics, on some of which he was thoroughly expert, but on others of which he may have derived his views from the few pages of a book at which he had happened to glance. The air of authority was the same in both cases. (p. 12)

Sowell then turns to the matter of centralized, expert knowledge vs. decentralized knowledge, and how the former can never substitute for the latter when it comes to making personal and business decisions — left-wing dogma to the contrary. Here, Sowell echoes Hayek’s Nobel Prize lecture, “The Pretence of Knowledge.”

The final pages of Chapter 2 are devoted to a critique of rationalism. This is the habit of mind, usually found on the left, by which intellectuals superimpose their views of what “ought to be” on decades and centuries of human striving, and pronounce the results of that striving “irrational.” (A recent case in point is Judge Vaughn Walker’s fatuous decision in Perry v. Schwarzenegger.)

Chapter 4, which is out of place, continues in the same vein as Chapter 2. That is, it expose more systemic errors of the left-wing view of the world. The sequence opens with a reprise of the theme of Sowell’s earlier book, A Conflict of Visions, which is followed by a departure from the studied neutrality of that book:

Th[e] vision of society … in which there are many “problems” to be “solved” by applying the ideas of morally anointed intellectual elites is by no means the only vision, however much that vision may be prevalent among today’s intellectuals. A conflicting vision has co-existed for centuries — a vision in which the inherent flaws of human beings are the fundamental problem and social contrivances are simply imperfect means of trying to cope with that problem…. (p. 77)

[That conflicting] vision is a sort of zero-based vision of the world and of human beings, taking none of the benefits of civilization for granted. It does not assume that we can begin with what we already have and simply tack on improvement, without being concerned at every step with whether these innovations jeopardize the very processes and principles on which our existing level of well-being rests…. Above all, it does not assume that untried theories stand on the same footing as institutions and practices whose very existence demonstrate their ability to survive in the world of reality…. (p. 79)

If you happen to believe in free markets, judicial restraint, traditional values and other features of the [constrained] vision, then you are just someone who believes in free markets, judicial restraint and traditional values. There is no personal exaltation resulting from those beliefs. But to be for “social justice” and “saving the environment,” or to be “anti-war” is more than just a set of beliefs about empirical facts. This [unconstrained] vision puts you on a higher moral plane as someone concerned and compassionate, someone who is for peace in the world, a defender of the downtrodden, and someone who wants to preserve the beauty of nature and save the planet from being polluted by others less caring. In short, one vision makes you somebody special and the other vision does not. These visions are not symmetrical…. (pp. 79-80)

That is to say, adherents of the constrained vision (conservatives) put great stock in what works, and change it only for the sake of improving it, and not for the sake of changing it because it doesn’t comport with their a priori views of how the world “ought to be.” By contrast, adherents of the unconstrained vision (the left) are wedded to the rhetoric of “ought to be” and its close relation, the Nirvana fallacy. They judge existing arrangements against unattainable standards of perfection (invented by themselves), and proclaim themselves to be on the side of all that is good. The adherents of the constrained vision point out, quite rightly, that the left’s proposals are inherently flawed because they fail to take into account the ways in which human nature produces unintended consequences.

Sowell has more to say about the unconstrained vision; briefly, it invents “rights” (to a “living wage,” “decent housing,” and “affordable health care,” and so on) that cause “compassionate” politicians to impose obligations on third parties (i.e., hapless taxpayers). This legalized theft — for that is what it is — is committed with scant regard for the good that taxpayers would do with their own money; for example:

Save it in the form of bank deposits, bonds, and stocks so that businesses may be formed, expand, and adopt more productive technology, thus creating jobs and fueling economic growth.

Help private charities and members of their immediate families, who are no less worthy of such help than complete strangers (unless, of course, you are an omniscient leftist who thinks otherwise).

But such considerations are beneath the left, whose mission is to “do good,” and damn the consequences.

On that note, I return to Sowell’s dissection of left-wing rhetoric. Here are some other incisive passages from Chapters 4:

That some people [the left] should imagine that they are particularly in favor of progress is not only another example of self-flattery but also of an evasion of the work of trying to show, with evidence and analysis, where and why their particular proposed changes would produce better end results than other people’s proposed changes. Instead, [those other people] have been dismissed … as “apologists for the status quo.” (pp. 101-2)

If the real purpose of social crusades is to make the less fortunate better off, then the actual consequences of such policies as wage control become central and require investigation…. But if the real purpose of social crusades is to proclaim oneself to be on the side of the angels, then such investigations have a low priority…. The revealed preference of many, if not most, of the intelligentsia has been to be on the side of the angels. (pp. 104-5)

…William Godwin’s notion that the young “are a sort of raw material put into our hands” remains, after two centuries, a powerful temptation to classroom indoctrination in schools and colleges…. This indoctrination can start as early as elementary school, where students are encouraged or required to write about controversial issues…. More fundamentally, the indoctrination process habituates them to taking sides on weighty and complex issues after hearing just one side of those issues…. In colleges and universities, whole academic departments are devoted to particular prepackaged conclusions — whether on race, the environment or other subjects…. Few, if any, of these “studies” include conflicting visions and conflicting evidence, as educational rather than ideological criteria might require. (pp. 108-9)

While logic and evidence are ideal criteria for the work of intellectuals, there are many ways in which much of what is said and done by intellectuals has less to do with principles than with attitudes…. During the earlier [“progressive”] era [of the early 1900s], when farmers and workers were the special focus of solicitude, no one paid much attention to how what was done for the benefit of those groups might adversely affect minorities or others. Likewise, in a later era, little attention was paid by “progressive” intellectuals to how affirmative action for minorities or women might adversely affect others. There is no principle that accounts for such collective mood swings. There are simply reasons du jour, much like the adolescent fads that are compulsive badges of identity for a time and afterwards considered passé…. (pp. 110-12)

…Anyone who suggests that individuals — or worse yet, groups — are unequal is written off intellectually and denounced morally as biased and bigoted toward those considered less than equal. Yet the empirical case for equality ranges from feeble to non-existent…. Does anyone seriously believe that whites in general play professional basketball as well as blacks? [For readers new to Sowell: He is black.] How then can one explain the predominance of blacks in this lucrative occupation, which offers fame as well as fortune? For most of the period of black predominance in professional basketball, the owners of the teams have all been white, as have most of the coaches. Then by what mechanism could blacks have contrived to deny access to professional basketball to whites of equal ability in that sport? (p. 114)

Thus armed against the essential fallacies of left-wing intellectualism, the reader is treated to dissections of left-wing error with respect to economics (Chapter 3), the media and academia (Chapter 5), the law (Chapter 6), and war (Chapters 7 and 8).

THE LEFT AND ECONOMICS

Chapter 5 (“Intellectuals and Economics”) is a sustained litany of the left’s obdurate insistence on the truth of economic fallacies. If there were a Nobel Prize for Economic Illiteracy, it would be awarded to left-wing academics (some of them economists) and pundits, as a group.

One of the left’s favorite preoccupations is “income distribution”:

Although such discussions have been phrased in terms of people, the actual empirical evidence cited has been about what has been happening over time in statistical categories — and that turns out to be the direct opposite of what has happened over time to flesh-and-blood human beings…. [I]n terms of people, the incomes of those particular taxpayers who were in the bottom 20 percent in income in 1996 rose 91 percent by 2005, while the incomes of those particular taxpeayers who were in the top 20 percent in 1996 rose by only 10 percent by 2005 — and those in the top 5 percent and top one percent actually declined. (p. 37)

The left’s systematic misunderstanding of economics rises to astounding heights on many other issues:

High interest rates — “immoral,” even though they reflect the risk of lending to borrowers who are likely to default.

Capitalism — “exploitative,” even though it has brought workers to much higher standards of living than under socialism and communism.

Competition — “chaotic,” because shallow thinkers cannot conceive of progress without central planning and control (though they are ready enough to concede man’s superior mental capacity to the chaotic thing known as evolution).

Government intervention — “essential and beneficial,” despite generations of evidence to the contrary (which is ignored by wishful thinkers on the left).

Business — “economically dominant,” despite the rise and fall of many a business empire, and the fact that business is at the mercy of consumers, not the other way around. (See “capitalism” and “competition.”)

Recessions and depressions — “the result of capitalist excesses,” even though — normal business cycles aside, government intervention (so cherished by the left) has caused or exacerbated several recessions (including the present one) and the Great Depression.

(In the foregoing list, I have violated the letter, but not the spirit, of Sowell’s commentary on economic subjects.)

THE LEFT, THE MEDIA, AND ACADEMIA

The title of Chapter 5 is “Optional Reality in the Media and Academia.” The subtitle of the entire book could well have been “The Left and Optional Reality,” for in Chapter 5 and elsewhere Sowell exposes leftism and left-wing intellectuals as unconnected with reality. There is a preferred leftist version of the world — which changes from time to time and drags devoted leftists in its wake. From that preferred vision, leftists concoct their view of reality.

As Sowell reminds us in Chapter 5, the left’s concocted view of reality has included:

air-brushing the brutality of totalitarian regimes then being held up as leftist ideals (e.g. the USSR, Communist China, Cuba)

suppressing data that would show affirmative action to be counterproductive

depicting gun ownership as an unmitigated evil

trying to pin poverty among blacks on “racism,” when it predominates among the families of single, black mothers who have been lured into a cycle of dependency on welfare

portraying homosexuals as “victims,” except when they happen to be priest of the despised Catholic religion

giving publicity and credibility to trumped-up charges of rape and arson, when the victims are black or the alleged perpetrators are “privileged” whites

exaggerating the incidence of poverty in the United States

demonizing the left’s enemies by attributing to them evil deeds that they didn’t commit

coining euphemisms to promote pet causes (e.g., bums as homeless persons, swamps as wetlands, trolleys as light rail, liberalism as progressivism)

justifying all of the foregoing (and more) on the ground that truth is subjective

portraying Americans as barbaric, in the face of true barbarism among cultures currently in favor with leftists

exaggerating the importance of isolated events, for the sake of promoting the left’s agenda, while ignoring the great advances that have resulted from the hum-drum, daily work of millions of “average” Americans.

The point of all of this deception and self-deception is simple and straightforward: it is to make the case (first to oneself and then to the public) for the left’s vision of how the world should be run. In the left’s Alice-in-Wonderland world of reality, the vision precedes and shapes the facts, not the other way around.

THE LEFT AND THE LAW

Nowhere is the left’s upside-down world more evident than in the development and application of law, which is the subject of Chapter 6 (“Intellectuals and the Law”). As Sowell observes,

There can be no dependable framework of law where judges are free to impose as law their own individual notions of what is fair, compassionate or in accord with social justice. Whatever the merits or demerits of particular judges’ conceptions of these terms, they cannot be known in advance to others, or uniform from one judge to another, so that they re not law in the full sense of rules known in advance to those subject to those rules….

By the second half of the twentieth century, the view of law as something to be deliberately shaped according to the spirit of the times, as interpreted by intellectual elites, became more common in the leading law schools and among judges. Professor Ronald Dworkin of Oxford University epitomized this approach when he dismissed the systemic evolution of the law as a “silly faith,” — systemic processes being equated with chaos, as they have been among those who promoted central economic planning rather than the systemic interactions of markets. In both cases, the preference has been for an elite to impose its vision, overriding if necessary the views of the masses of their fellow citizens…. (pp. 157-160)

The left’s approach to the law is, in a word, rationalistic. That is, it would uproot tradition — which embodies the wisdom of experience — simply because it is tradition, and replace it with reductionist constructs that have been tested only in the minds of left-wing intellectuals. The left’s insight into human nature, and all that it entails, is profoundly shallow, to coin an apt oxymoron.

Sowell documents many of the ways in which the left has tortured the Constitution, so that it no longer serves its intended, minimalist role of preserving the liberty that had been won by the War of Independence. The story of how the Constitution — the supreme law of the land — became, in the hands of the left, a weapon in their war against liberty is too depressing (and long) to recount in detail. I will say, simply, that Sowell has the story down pat:

disregard for the original meaning of the Constitution (and, thus, disregard for the rule of law)

judicial interpretation of the Constitution in ways intended to reach outcomes favored by the left, even when those outcomes clearly ran contrary to the letter and spirit of the Constitution

the expansion of the power of the federal government, in the service of those outcomes, to a point where there is nothing beyond its dictatorial reach, and no one is secure in the right to the peaceful enjoyment of life, liberty, and property.

It is not only that government now enjoys unlimited reach, but that it has failed in its duty to curb the reach of the predators among us:

As noted in Chapter 2, a retired New York police commissioner who tried to tell a gathering of judges of the dangerous potential of some of their rulings was literally laughed at by the judges and lawyers present. In short, theory trumped experience….

[A]fter many years of rising crime rates had built up sufficient public outrage to force a change in policy, rates of imprisonment rose — and crime rates began falling for the first time in years. [Leftist intellectuals] lamented the rising prison population in the country and, when they acknowledged the declining crime rate at all, confessed themselves baffled by it, as if it were a strange coincidence that crime was declining as more criminals were taken off the streets….

In light of the fact that a wholly disproportionate amount of crime is committed by a relatively small segment of the population, it is hardly surprising that putting a small fraction of the total population behind bars has led to substantial reductions in the crime rate….

…The very mention of “Victorian” ideas about society in general, or crime control in particular, is virtually guaranteed to evoke a sneer from the intelligentsia. The fact that the Victorian era was one of a decades-long decline in alcoholism, crime and social pathology in general … carries virtually no weight among the intelligentsia, and such facts remain largely unknown among those in the general public who depend on either the media or academia for information.

Thus are the wages of leftist idealism and the left’s rationalistic dismissal of traditional ways and mores.

THE LEFT AND WAR

Sowell rolls out the heavy guns in Chapter 7 (“Intellectuals and War”) and Chapter 8 (“Intellectuals and War: Repeating History”). A good way to summarize the lessons of these chapters is to say that the left’s attitudes toward war resemble the ebbing and flowing of an emotional tide. War is good, in the abstract, when it is a distant memory and the one in the offing presents an opportunity to “do good” — “the war to end all war,” and all that.

Then comes a war and its aftermath, both of which are far messier than intellectuals had expected them to be, given that their minds run to abstraction. A reflexive anti-war posture then sets in, and becomes a sign of membership in the leftist coalition,much as a fraternity pin dangling from a watch chain used to be a sign of membership in this or that exclusive circle. Given the left’s dominance in the various mass media, anti-war propaganda soon dominates and colors the public’s view of war.

Anti-war sentiment — inflamed by the left — might have kept the U.S. out of WWII, with disastrous results, had it not been for the Hitler’s decision to attack the USSR and Japan’s miscalculated attack on Pear Harbor. The former event was more important to left than the latter, which caused non-intellectual isolationists to awaken from their slumber.

A generation later, anti-war propaganda disguised as journalism helped to snatch defeat from the jaws of victory in Vietnam. What was shaping up as a successful military campaign collapsed under the weight of the media’s overwrought and erroneous depiction of the Tet offensive as a Vietcong victory, the bombing of North Vietnam as “barbaric” (where the Tet offensive was given a “heroic cast), and the deaths of American soldiers as somehow “in vain, ” though many more deaths a generation earlier had not been in vain. (What a difference there was between Edward R. Murrow and Walter Cronkite and his sycophants.)

Were it not for the determined leadership of Ronald Reagan, the left’s anti-war and anti-preparedness rhetoric — combined with a generous dose of fear-mongering — would have derailed the defense buildup in the 1980s, to which the collapse of the Soviet Union should be attributed. The left, of course, refuses to go along with the truth, preferring instead to credit the feckless Mikhail Gorbachev.

Only the 9/11 attacks helped to reverse the Clinton defense build-down of the 1990s. It has often been said, and said truly, that Clinton balanced the budget on the back of defense. But the 9/11 attacks might not have occurred had it not been for the “wall” of separation between foreign intelligence and domestic law-enforcement that was erected and maintained under Clinton’s Justice Department.

Only the determined leadership of George W. Bush (say whatever else you want to about him) brought about a reversal of fortune in the Iraq war, over the vocal and obstructive voices of the left — among which one must number the present occupant of the White House.

Then there is the constant campaign of leaks — originated through leftist media outlets — that compromise defense plans, intelligence operations, and anti-terrorist activities. That campaign meshes well with the left’s resolute determination to treat terrorists as criminal suspects, even when they are able to evade civilian justice because the evidence against them is too sensitive to be divulged in civilian courts.

Members of the armed forces are useful to the media mainly as a weapon with which to beat the anti-war, anti-defense drum. Aside from the occasional token remembrance of their sacrifices, they are mainly portrayed by the media as “victims” (because of war wounds), suicidal (though less so than the population at large), and violent (though less so than civilians of the same demographic group).

The beat goes on, relentlessly. In the meantime, America’s enemies and potential enemies take heart.

Americans now face a far more serious budget-balancing exercise, as the nation’s tax-payers face the looming mountain of debt arising from the accrual of “commitments,” past and present known as Social Security, Medicare, Medicaid, and their expansion through CHIP, the Medicare prescription drug program, and Obamacare. Instead of confronting the real problem, politicians will duck it — for a while — by cutting other programs and raising taxes. Defense will carry a disproportionate share of the burden.

Will the U.S. be prepared for the next Pearl Harbor, the one that is far more devastating than the 9/11 attacks? In light of history and the way in which politics is played, the answer is “no.” And the next time, the U.S. will not have months and years in which to mobilize for a counter-attack. The next time, the enemy — whoever it is — will strike directly at America’s energy, telecommunications, and transportation networks with devastating blows that cripple the economy and spread fear and chaos throughout the land. (Here, I should remind the left that a sudden defeat would deprive its members of the opportunity to do what they do well when their leaders signal approval of a war: writing propaganda pieces for the home front, making propaganda films (often thinly disguised as entertainment), and commandeering the economy to plan wartime production, set price controls, and establishing ration quotas.)

Shouldn’t the nation be preparing assiduously against such a contingency, and spending what it takes to prevent it, to work around it, and to recover from it quickly? You would think so, but — thanks largely to the left-wing agenda of bread and circuses — the necessary steps will not be taken. And the left will be out in front of the opposition to preparedness, shouting that the nation cannot afford more defense spending when it faces critical social “obligations.”

On that note, I close this portion of the review with an apt quotation that I am fond of deploying:

It is customary in democratic countries to deplore expenditure on armaments as conflicting with the requirements of the social services. There is a tendency to forget that the most important social service that a government can do for its people is to keep them alive and free. (Marshall of the Royal Air Force Sir John Cotesworth Slessor, Strategy for the West, p. 75)

BAD IDEAS HAVE BAD CONSEQUENCES

The title of this final portion of a long review sums up the thesis of Intellectuals and Society. Sowell’s eponymous concluding Chapter 9 is not consistently on target, but it has its moments; for example:

The general public contributes to the income of intellectuals in a variety of ways involuntarily as taxpayers who support schools, colleges, and various other institutions and programs subsidizing intellectual and artistic endeavors. Other occupations requiring great mental ability — engineers, for example — have a vast spontaneous market for their end products…. But that is seldom true of people whose end products are ideas. There is neither a large nor a prominent role for them to play in society, unless they create it for themselves. (pp. 286-7)

*     *     *

While the British public did not follow the specific prescriptions of Bertrand Russell to disband British military forces on the eve of the Second World War, that is very different from saying that the steady drumbeat of anti-military preparedness rhetoric among the intelligentsia in general did not imped the buildup of a military deterrence or defense to offset Hitler’s rearming of Germany (p. 288)

In international issues of war and peace, the intelligentsia often say that war should be “a last resort.”… War should of course be “a last resort” — but last in terms of preference, rather than last in the sense of hoping against hope while dangers and provocations accumulate unanswered, while wishful thinking or illusory agreements substitute for serious military preparedness — or, if necessary, military action. As Franklin D. Roosevelt said in 1941, “if you hold your fire until you see the whites of his eyes, you will never know what hit you.” The repeated irresolution of France during the 1930s, and on into the period known as the “phony war” that ended in its sudden collapse in 1940, gave the world a painful example of how caution can be carried to the point where it becomes dangerous (pp. 289-90)

*     *     *

The period from the 1960s to the 1980s was perhaps the high tide of the influence of the intelligentsia in the United State. Though the ideas of the intelligentsia still remain the prevailing ideas, their overwhelming dominance ideologically has been reduced somewhat by counter-attacks from various quarters….

Nevertheless, any announcement of the demise of the [leftist intellectualism] would be very premature, if not sheer wishful thinking, in view of [its] continuing dominance … in the educational system, television and in motion pictures that deal with social or political issues. In short, the intellectuals’ vision of the world — as it is and as it should be — remains the dominant vision. Not since the days of the divine rights of kings has there been such a presumption of a right to direct others and constrain their decisions, largely through expanded powers of government. Everything from economic central planning to environmentalism epitomizes the belief that third parties know best and should be empowered to over-ride the decisions of others. This includes preventing children from growing up with the values taught them by their parent if more “advanced” values are preferred by those who teach in the schools and colleges. (pp. 291-92)

*     *     *

Unlike engineers, physicians, or scientists, the intelligentsia face no serious constraint or sanction based on empirical verification. NOne bould be sued for malpractice, for example, for having contributed to the hysteria over the insecticide DDT, which led to its banning in many countries around the world, costing the lives of literally millions of people through a resurgence of malaria. (pp. 296-7)

*     *     *

One of the things intellectuals have been doing for a long time is loosening the bonds that hold a society together. They have sought to replace the groups into which people have sorted themselves with groupings created and imposed by the intelligentsia. Ties of family, religion, and patriotism, for example, hav long been treated as suspect or detrimental by the intelligentsia, and new ties that intellectuals have created, such as class — and more recently “gender” — have been projected as either more real or more important. (p. 303)

*     *     *

Under the influence of the intelligentsia, we have become a society that rewards people with admiration for violating its own norms and for fragmenting that society into jarring segments. In addition to explicit denigrations of their own society for its history or current shortcomings, intellectuals often set up standards for their society which no society of human beings has ever met or is ever likely to meet.

Calling those standards “social justice” enables intellectuals to engage in endless complaints about the particular ways in which society fails to meet their arbitrary criteria, along with a parade of groups entitled to a sense of grievance, exemplified in the “race, class and gender” formula…. (p. 305)

I remind you that Sowell (and I) are, in the main, talking about the left — especially its elites. These are the so-called intellectuals and technocrats who dominate the media, academia, left-wing think tanks, and the upper layers of government bureaucracies. The smugness, sameness, and other-worldliness of their views is depressingly predictable.

The left advances its agenda in many ways, for example, by demonizing its opponents as “mean” and even “fascistic” (look in the mirror, bub), appealing to envy (stuck on “soak the rich,” with the connivance of some of the guilt-ridden “rich”), sanctifying an ever-growing list of “victimized” groups (various protected “minorities”), and taking a slice at a time (e.g., Social Security set the stage for Medicare which set it for Obamacare).

The left’s essential agenda is the repudiation of ordered liberty of the kind that arises from evolved social norms, and the replacement of that liberty by sugar-coated oppression. The bread and circuses of imperial Rome have nothing on Social Security, Medicaid, Medicare, Obamacare, and the many other forms of personal and corporate welfare that are draining America of its wealth and élan. All of that “welfare” has been bought at the price of economic and social liberty (which are indivisible).

Leftists like to say that there is a difference between opposition and disloyalty. But, in the case of the left, opposition arises from a fundamental kind of disloyalty. For, at bottom, the left pursues its agenda because it hates the idea of what America used to stand for: liberty with responsibility, strength against foreign and domestic enemies.

Most leftists are simply shallow-minded trend-followers, who believe in the power of government to do things that are “good,” “fair,” or “compassionate,” with no regard for the costs and consequences of those things. Shallow leftists know not what they do. But they do it. And their shallowness does not excuse them for having been accessories to the diminution of America. A rabid dog may not know that it is rabid, but its bite is no less lethal for that.

The leaders of the left — the office-holders, pundits, and intelligentsia — usually pay lip-service to “goodness,” “fairness,” and “compassion.” But their lip-service fails to conceal their brutal betrayal of liberty. Their subtle and not-so-subtle treason is despicable almost beyond words. But not quite…

The Bowles-Simpson Band-Aid

I have twice blogged about the Bowles-Simpson deficit-reduction plan (here and here). As I said in the first of the two posts, Bowles-Simpson

aims at too many spending targets, and misses the elephant in the room: “entitlement” commitments, namely, Social Security, Medicare, and Medicaid (and their promised expansion via Obamacare).

How badly does Bowles-Simpson miss the real target, namely, so-called entitlements? Here’s a closer look:

Bowles-Simpson ducks the long-term problem and focuses on the deficit through 2020. From now until then, the annual rate of spending on entitlement programs is expected to rise by $1.3 trillion (that’s projected spending in 2020 less spending in 2010). At
the same time, the annual rate of so-called discretionary spending (which includes defense) is expected to rise by less than $0.2
trillion. The other big kicker is interest, which is expected to rise by $0.7 trillion.

So, Bowles-Simpson would reduce the projected increases in Social Security and government health-care programs by a “whopping” $0.1 trillion, while whacking about the same amount out of discretionary spending, jacking up tax revenues by $0.2 trillion, and saving about $0.2 trillion in interest expenses. Net result: the projected deficit for 2020 shrinks by about $0.8 trillion. (I derived the estimates from Figures 15 and 16 of the appendix to the Bowles-Simpson report.)

What the Bowles-Simpson report doesn’t say is that the bill for entitlement spending will keep growing after 2020. You can tell that by looking at the trends in the “mandatory” spending lines of Figure 15 (the “plausible baseline”). And you can see the trend starkly in figure A-1 of of CBO’s long-term budget outlook, as of August 2010. Social Security’s share of GDP rises until the 2030s, then levels off. But the expected share of GDP consumed by federal heath-care programs just keeps rising.

The Bowles-Simpson band-aid would merely mask the essential problem for another 10 years, at which point it will be that much harder to trim the “commitments” represented by entitlement programs, and that much harder to find places to cut “discretionary” spending. (Defense, as usual, will be a tempting target.)

The bottom line: If long-term entitlement “commitments” aren’t reduced soon, the tax increases required to bring the deficit under control will be huge and economically crippling. Entitlements will suck up money that could go into growth-producing investments, and the economy will be locked in a death-spiral toward permanent stagnation.

Are You an Austrian?

There is a detailed explanation of Austrian economics at The Concise Encyclopedia of Economics. In summary:

Only individuals choose.
The study of the market order is fundamentally about exchange behavior and the institutions within which exchanges take place.
The “facts” of the social sciences are what people believe and think.
Utility and costs are subjective.
The price system economizes on the information that people need to process in making their decisions.
Private property in the means of production is a necessary condition for rational economic calculation.
The competitive market is a process of entrepreneurial discovery.
Money is nonneutral.
The capital structure consists of heterogeneous goods that have multispecific uses that must be aligned.
Social institutions often are the result of human action, but not of human design.

Read the whole thing. Then take the 10-question quiz about Austrian economics at the website of the Ludwig von Mises Institute. I took the quiz a few years ago, and found that I was 95-percent Austrian in my economic views. Upon sober reflection, I remain obdurate in my “Chicago” answer to question 6, and therefore 95-percent Austrian.

If you don’t want to bother with the quiz, the questions and Austrian answers are below the fold. Continue reading “Are You an Austrian?” →

“Net Neutrality”

“Net neutrality” is a dumb idea, on a par with “buy local.”

The logic of net neutrality is as follows: All autos must be black Model-Ts. It’s not “fair” if someone offers to make a Mustang for those who want something better. It’s not “fair” if Mustang owners can get from place to place faster than Model-T owners. We must all be the same. No more of this male or female nonsense, or allowing batters to hit more than their “share” of home runs, etc.

Almost everything that one can buy comes in different gradations of quality: automobiles, shoes, bread, haircuts, computers, internet service, and on and on. Those gradations of quality enable each of us to buy goods and services that meet our particular needs, given our income constraints and preferences.

Why should I object if certain producers of web content get better service (faster delivery of their content) if they pay a fee for that better service? They’re paying a fee for a service, just as I’m paying a higher fee for my high-speed DSL service than are many other consumers who can’t afford or choose not to pay as much for their internet service as I do. My higher fee enables me to obtain web content faster than those other consumers. Should I be forced to accept a slower speed so that they won’t be relegated to “second class” status? What about those consumers who pay even more than I do and, in return, get even faster DSL or cable service? What about those consumers who buy big Lexuses when others can only afford Honda Civics? What about those consumers who buy tailored suits when others can only afford to buy their clothes at Wal-Mart?

You can see the end of it can’t you? By the “logic” of net neutrality, everyone would be forced to accept goods and services of the same quality. That quality would be poor because there would be no incentive to produce better goods and services to earn more money in order to buy better goods and services — because they couldn’t be bought. Reminds me of the USSR.

But it’s “different” for providers of web content. Or so say the proponents of net neutrality. The providers of web content aren’t consumers, they’re producers. (Aren’t we all, in one way or another?) If they’re able to deliver their content faster than other producers, they’ll have an “unfair” advantage over those other providers. To which I say balderdash. Here’s why:

1. A demand for faster delivery of web content will be met by a supply of greater internet capacity, as supliers of internet capacity upgrade their networks in their competitive efforts to meet the demand for faster delivery. That is, the loss of net neutrality is unlikely to have any effect on other content providers. But there’s more to it . . .

2. Faster delivery will command a premium, just as a Lexus commands a premium over a Honda Civic.

3. Content providers will demand faster delivery and pay the premium for it only to the extent that it yields a positive return (i.e., greater profit).

4. Faster delivery will yield a positive return only to the extent that consumers actually respond to the products and services offered by buying sufficiently more of them.

5. Those consumers, therefore, will pay the premium for the faster delivery of web content.

End of discussion.

P.S. Well, almost the end of the discussion. A friend responded to the first paragraph of this post, which I put on my Facebook wall. He wrote:

Logic is all roads must be open to all. The vehicles you drive may range from Model A Fords to $300,000 race cars. But we all have access to the same highways. NN is very similar to Eisenhower’s Interstate Highway program of the 50s. Don’t confuse product using Net with the Net itself.

To which I replied:

The “road” is open, but it has some toll lanes. Moreover, the “road” is privately owned. Don’t confuse someone else’s property and business with your own.

And…NN says that even if you own a race car, you can’t go faster than a Model A. NN is like the Interstate Highway program would have been if government had commandeered privately built highways and dictated the terms of their use. NN is like telling you that your restaurant can serve only grilled cheese sandwiches because there are customers who can’t afford steak.

He does own a restaurant, and you might think that he would not favor big government. But he does, out of long habit and “religious” fervor. The restaurant is a post-retirement extravagance. He continues to believe (as lefties do) that government is a precision instrument, which can and will be applied only to those ends that they favor. And yet (as lefties do) he complains when government is controlled by Republicans and does things of which he disapproves.

“Buy Local”

I’ve never understood the “buy local” movement (if you can call it that).

Should I buy only those things that have local origins? Probably not, unless I have a strong preference for near-nudity, walking everywhere, and eating raw meat, wild cherries, and a limited selection of uncooked vegetables. Why raw meat and uncooked vegetables? Well, unless I’m very good at making things like ranges and cooking utensils (out of what?), I won’t have anything to cook on or with. Or maybe I’d be expected to cut down all the trees on my property for a few months’ worth of open fires, which I would start … how, by rubbing sticks together?

Anyway, what’s “local”? Is it the places I can walk to in, say, four hours, so that I have time to walk back home and prepare my meal of raw meat, and so on? It must be, if “buy local” rules out the purchase of a bicycle (not made locally) or a car (not made locally), which requires fuel (not made locally).

Well, let’s say that “buy local” means that I should buy only from local merchants, regardless of the source of the things they sell. Is Sam’s Club a local merchant? I think so. After all, the store sits in Austin, and the people who work there must live in and near Austin.

Oh, but I can’t buy things at Sam’s Club because it’s not a locally owned store. It’s part of a big, nationwide chain of stores — an offshoot of Wal-Mart. And stores like that put “local” merchants out of business. Or is it that wise consumers, who don’t like to ripped off, put “local” merchants out of business by taking their business elsewhere?

The fact that Sam’s Club, etc., are local stores, pay local taxes, and hire local people doesn’t matter, you say? The fact that the lower prices charged by outfits like Sam’s Club are a boon to consumers (many of them low-income consumers) doesn’t matter, you say? We should just suck it up and pay a premium to “local” merchants? Why? So they can sell us the same, mostly non-local stuff at higher prices because their operations are less efficient than those of Sam’s Club and the like? (I love to use Sam’s Club as an example because (a) I shop there and (b) it drives my left-wing acquaintances nuts. They talk as if the employees of Sam’s and Wal-Mart are slaves who have been dragooned into service, unlike the employees of Costco.)

And what about internet retailers like Amazon.com? Are they off-limits, too? Heaven forbid that I should be able to get more for my money, and save a lot of time and trouble, by shopping online. I could spend a lot more time, consume fuel, and wear out tires and brakes by going to a bunch of “local” stores for the same things. If they offer them. And if they do, I’ll probably pay more, to boot.

Perhaps “we” should go back to the “good old days” of the late 1800s, when most things were purchased locally. (Though not made locally out of locally available materials.) No one had cars to bother with, just dirty, smelly horses and uncomfortable buggies and wagons. Anyway, when cars came along, they weren’t produced locally, so people were just as well off without them.

Wait a minute. The relative lack of mobility of the late 1800s led to the innovation known as catalog shopping. Remember Montgomery Ward and Sears, Roebuck and Company? If you don’t you ought to look them up. They were the Amazon. com of the day — and for many long years. Not only that, but they also had “local” stores across the country, as did J.J. Newberry, F.W. Woolworth, and (within a few decades) S.S. Kresge, J.C. Penney, and many others. Then there was A&P, which — despite its later reputation as a third-rate grocery chain — led the way in bringing to American consumers a wider variety of foodstuffs at affordable prices.

I could go on, but I hope you get the idea. If you’re serious about buying “local” — in the strictest sense — you’re doomed to a life of hard labor and rudimentary shelter, clothing, food, entertainment, medical care, and everything else. Plus, there’s all that stuff you’ll never miss, like your iPhone, Facebook, the internet itself, movies, TV, radio, and whatever else passes for amusement these days.

You see, I just don’t know where one is supposed to draw the line when it comes to buying “local.” And once you go beyond that line — wherever it is — have you done something bad? Like enjoying a healthier, better-nourished, better-clothed, better, housed, more richly entertaining life? Like getting more for your money? Like providing employment for local people who don’t happen to work for “local” companies? Like providing employment for people who don’t live locally but are able to make things that can’t be made locally, at all, or as well or as cheaply?

All of this confusion about “buy local” is driving me nuts. Maybe I’ll sue the local chamber of commerce for emotional distress. But I’ll have to hire a lawyer who’s a native of Austin and who got his law degree at UT. Of course, there might be better lawyers who aren’t natives and who got their law degrees in other places. But that’s my tough luck, isn’t it?

Our Enemy, the State

I have written much about the economic and social damage wrought by state action. In this post, I step back from particular instances of state action to explain, in general terms, how it damages the economic and social infrastructure that it is supposed to protect, in a so-called free nation.

I begin with tutorials about economic and social behavior and their intertwining. When I have laid that groundwork, I explain the destructiveness of state action when it goes beyond the protection of life, liberty, and property.

ECONOMIC BEHAVIOR AND “ECONOMICS”

There is more to economic behavior than production and exchange, at arm’s length. But it is those aspects of economic behavior that usually come to mind when one refers to “economics.” In the narrow view, economic behavior has five facets:

Buyers allocate their disposable (after-tax) incomes among various goods (products and services, including forms of saving), according to their individual tastes and preferences, which are influenced by many things (e.g., socioeconomic status, family status, and cultural heritage).

Sellers choose the quantities and prices of goods that they offer to buyers, given the factors that affect their production costs and possibilities (e.g., resource prices, innovation, government intervention).

Buyers and sellers act — through the mechanism known as “the market,” which usually is not a physical place — to determine the mix of goods that changes hands.

The mix of goods exchanged varies across time, as tastes and preferences change; goods change because of invention, innovation, and variations in resource prices; and government intervention varies in type and intensity (usually waxing rather than waning).

The general level of goods exchanged — as measured roughly by their aggregate monetary value — is affected by the foregoing.

All of these actions occur simultaneously and dynamically.

Aggregation has no validity unless it is grounded in an understanding and valid description of the disaggregated behavior of buyers and sellers. Even then, aggregation fails to depict the totality of economic activity because (a) much of it is unmeasured (e.g., so-called household production); (b) not all activity moves in the same direction at the same time; (c) tastes, preferences, and production possibilities are constantly changing; and, most importantly, (d) there is no valid way of aggregating the satisfaction, pleasure, happiness, or utility (call it what you will) that the fruits of economic activity impart to the unique individuals who partake of it.

In any event, the underlying characteristic of economic behavior is its transactional nature. Two or more parties agree to exchange things (goods, money, other stores of value) in an effort by each party to gain satisfaction, pleasure, happiness, or utility (call it what you will). Transactional behavior is a manifestation of social behavior, in that it is cooperative.

ECONOMIC BEHAVIOR AS SOCIAL BEHAVIOR

The kinds of economic behavior listed above typically are studied as “economics,” which — until recent decades — was limited mainly to the explicit exchange of goods for goods or goods for money. But such transactions are not the whole of economic behavior, and are far from the whole of social behavior.

Some kinds of transactional behavior are considered deeply personal — and they are deeply personal — but they involve exchange, nonetheless. One such behavior is friendship; another is sex; a third is loyalty:

Friendship is mutual, so its economic nature should need no explanation.

So is sex mutual, when it is consensual. It may be given for many reasons other than monetary gain, but its essential character is transactional: parties giving each other pleasure.

Loyalty arises from a kind of tacit exchange; that is, loyalty-inducing acts yield loyalty, which can be drawn upon (or not) at the behest of the person who commits loyalty-inducing acts. Loyalty may accompany friendship, but it also may exist apart from friendship.

These and other kinds of “personal” acts are not usually considered to be economic in nature, for three reasons: (a) the medium of exchange is far removed from money (or anything like it); (b) the transactions are so idiosyncratic as to defy the usual statistical-mathematical reductionism of economics; and (c) the transactions are far removed in character from, say, the buying and selling of potatoes.

The distinction between economic and social behavior has almost vanished in recent decades, with the rise of behavioral economics. This brand of economics focuses on the psychological determinants of economic behavior. There is much research and speculation about how and why individuals choose as they do, not only in the spending of money but also it other, more “personal,” types of social interaction.

Formal economics aside, the essential character of economic behavior is, as I have said, transactional. Economic transactions — even those that are deeply personal — are cooperative. But not all social behavior is transactional. In that subtle distinction lies the difference between economic behavior and “pure” social behavior.

“PURE” SOCIAL BEHAVIOR

What is “pure” social behavior? A good example can be found in religion. Certainly, religion has transactional aspects, as in the “giving” of one’s belief in the hope of a heavenly afterlife. But religion, for billions of persons, is much more than that. So is sex in a loving marriage. So friendship can be.

What is this deeper aspect of “pure,” non-transactional (non-economic) social behavior? It is rooted in the capacity of humans for self-generated emotional satisfaction. This can manifest itself as a uni-directional attachment to another person or being, an attachment that does not depend on the actions of its subject. A mundane but not all-encompassing term for it is “unconditional love.” A perhaps more apt term is “needing to belong” to someone or something.

A uni-directional attachment becomes a “pure” social relationship when individuals join to celebrate an attachment in common. To offer a short list of examples, the attachment may be to a family (nuclear or extended) as a family, apart from mutual attachments between individuals; religion; club; patriotic organization; or even a neighborhood, where the attachment is to the neighborhood itself, instead of or in addition to neighborly friendships. Membership in such organizations — the feeling of belonging to something “bigger” than oneself — can complement and heighten the underlying uni-directional attachment felt by each member.

POLITICS

Politics, as I use the term here, is simply an aspect of social behavior. It is the working out of the rules (signals, customs, taboos) and roles that individuals will follow and adopt in transactional and “pure” social relationships. Some rules may be confined to particular relationships; others may spread widely through emulation and necessity. Necessity arises when there is a network of transactional and “pure” social relationships that comprises disparate local sub-groups. Common rules, in such a case, help to ensure that members are recognized, and that their behavior is consistent with the purpose of the social network.

Rules range from the use of secret handshakes (to signal membership in a particular organization) to shunning (as a signal that the target has been ejected from a particular social organization). In between, there are things like the religious symbolism (e.g., the way in which the Sign of the Cross is made), deportment (stiff upper lip, and all that), the use of drugs (or not), and myriad other tokens of membership in the overlapping social groupings that comprise humanity. Such groupings include the fraternity of individualists, who despite their individualism, share an allegiance to it and variations on themes that justify it.

Roles denote one’s standing in a social group. Roles are determined by rules and signaled by the observance of certain of them. The role of a wife in many cultures, for example, was (and remains) overt subservience to the edicts of the husband. Subservience is signaled by the observance of rules that include, for example, standing while the husband eats his meal, and eating only when he has finished. The extent to which a particular wife is truly subservient to her husband — bowing to his political judgments or, alternatively, influencing them — is a political matter that lies between them and depends very much on the individuals involved.

Here, I must digress about the difference between voluntarily evolved social distinctions and dominance by force. Busybodies are quick to adopt the view that outward signs of subservience — and similar social phenomena that seem to create classes of individuals — indicate the forceful imposition of rules and roles. Busybodies, in other words, cannot (or do not wish to) tell the difference between something as abhorrent as slavery and a time-honored rule or role that, by facilitating social behavior, saves time and effort and reduces the likelihood of conflict. The role of a busybody is to question and challenge everything that is not done the way he would do it; a busybody, in other words, is a person of limited empathy and imagination. (For more about the proper role of the state with respect to social behavior, see “The Principles of Actionable Harm.”)

THE INDIVISIBILITY OF SOCIAL AND ECONOMIC BEHAVIOR

Everything I have discussed to this point involves real politics: transactions for mutual benefit, within a framework of voluntarily evolved rules and roles, without the imposition or threat of force by the state.

For example, the dietary laws of Judaism, when observed strictly (as they are in certain sects) affect the kinds of foodstuffs that observant Jews will grow, raise, or buy. Those of us who are old enough to remember when the three top-selling makes of automobile in the U.S. were Ford, Chevrolet, and Plymouth will also remember that the choice of which to buy was (in certain socioeconomic circles and age groups) a sign of membership in a loose affiliation of kindred auto owners. More generally, the demand for certain kinds of clothing, electronic equipment, beverages, automobiles, and so on is determined to some extent by socioeconomic status and group membership. Outsiders may mimic insiders in an effort to increase their standing with peers, to signal an aspiration to belong to a certain group, or as a sign of membership in an auxiliary group (e.g., a fan club, or whatever it is called now).

Thus we have real politics as the lubricant of social behavior. And we have economic behavior as an aspect of social behavior.

There is nevertheless a widely held view that economic behavior is distinct from social behavior. But when the state taxes or regulates “economic” activity, it shapes and channels related “social” activity. For example, the family that pays 25 percent of its income in taxes is that much less able to join and support organizations of its choice, to own and exhibit tokens of its socioeconomic status, to afford better education for its children, and so on. The immediate rejoinder will be that nothing has been changed if everyone is affected equally. But because of the complexity of tax laws and regulations, everyone is not affected equally. Moreover, even if everyone were deprived equally of the same kind of thing — a superior education, say — everyone would be that much worse off by having been deprived of opportunities to acquire remunerative knowledge and skills, productive relationships, and mental stimulation. Similarly, everyone would be that much worse off by being less well clothed, less well housed, and so on. Taxes and regulations, even if they could be applied in some absolutely neutral way (which they can’t be), have an inevitably deleterious effect on individuals.

In sum, there is no dividing line between economic and social behavior. What we call social and economic behavior are indivisible aspects of human striving to fulfill wants, both material and spiritual. The attempt to isolate and restrict one type of behavior is futile. It is all social behavior.

“POWER POLITICS”: OR, ENTER THE STATE

The activity that we usually call “politics” is not politics at all. Real politics, as I have said, is the voluntary working out of rules and roles, in the context of social behavior, which encompasses so-called economic behavior. With voice and exit, those who are unhappy with their lot can try to persuade the other members of their voluntary association to adopt different rules. If they fail, they can choose a more congenial social set (if one is available to them), which may involve moving to a different place. The ability to “vote with one’s feet” is an instrument of persuasion, as well, for it signals the group that one leaves (or credibly threatens to leave) of a defect that may cause others to leave, thus endangering the attainment of the group’s common objective.

What we usually call “politics” is entirely different from true politics. I call it “power politics.” It amounts to this:

A state is established, either by force alone or through a combination of consent, by limited to certain social and/or interest groups, and force, imposed on dissenting and uninvolved persons.

The state enjoys a monopoly of force, which it may — in the beginning, at least — apply to limited purposes, usually the defense of its citizens from aggression, intimidation, fraud, and theft.

There is a constant struggle for control of the state, either by force or by the kind of “politics” endemic to the state. The “politics” amounts to non-violent contests between and among various social and/or interest groups. The contests are conducted according to formal rules established under the aegis of the state, not a working-out of a modus vivendi in the normal course of real politics.

Control of the state enables the winners to override the rules that arise voluntarily through social cooperation. Rules imposed by the state come in the form of statutes, regulations, executive orders, judicial decrees, and administrative decisions (which may take a life of their own).

The effects of the various statutes, etc., are long-lasting because they often are not repealed when power changes hands. Instead, they remain in place, with the result that state power accrues and expands, while — as a result — the scope of social behavior shrinks and becomes less potent.

In other words, power in the hands of the state — and those who control it — is anti-social. Acts of the state are not acts of “society” or “community.” Those terms properly refer to consenting relationships among individuals — relationships that are shaped by real politics.

The state, in its ideal form, upholds and defends “society” and “community.” But when it oversteps its legitimate bounds, it commits the very acts of aggression, intimidation, fraud, and theft that it is supposed to deter and prevent. Moreover, it undoes the fabric of “society” and “community” by unraveling the voluntarily evolved social rules that bind them and guide them in peaceful cooperation.

Estimating the Rahn Curve: Or, How Government Inhibits Economic Growth

Incorporated in this post.

The Recession Still Lingers

UPDATED 10/30/10

The latest release from the Bureau of Economic Analysis, which includes the “advance” estimate of real GDP for the third quarter of 2010, indicates that the recession isn’t over, by my definition of a recession:

two or more consecutive quarters in which real GDP (annualized) is below real GDP (annualized) for an earlier quarter, during which

the annual (year-over-year) change in real GDP is negative in at least one quarter.

Real GDP for the third quarter was $13,260.7 billion (annualized rate, chained 2005 dollars). Although that’s better than the second quarter, it remains below the peak of $13,359.0, which was reached in the second quarter of 2008.

Here’s how real GDP has fared from the first quarter of 1947 through the third quarter of 2010 (recessions are denoted by vertical bars):

(In this version of the graph I have eliminated the 1947 recession, for lack of complete statistics, and pushed the beginning of the current recession to an earlier quarter.)

(I have added the following sentence and related graph.) Here’s a closer look at the depth and duration of post-war recessions:

Finally, here are year-over-year changes in real GDP, from the first quarter of 1948 through the third quarter of 2010:

This graph, by the way, updates the one I used in “The Price of Government: More Evidence,” where I say:

You will notice two things about the graph. First, the economy is cyclical, thanks in part to the actions of government (e.g., the low-interest, housing-bubble recession). Second, economic growth has declined from an annual rate of around 4 percent to an annual rate of about 2 percent, because of government.

I Want My Country Back

When a Tea Partier says something like “I want my county back,” leftists reliably label the sentiment as racist, sexist, homophobic, mean-spirited, and a lot of other things that are meant to be uncomplimentary. Well, I’m not an active member of the Tea Party movement, but I am sympathetic to it. And if I were to say “I want my country back,” here’s what I would mean by it:

Let’s start with the unlawfulness of government. The Constitution of the United States creates a “national” government of limited and enumerated powers, to act on behalf of the States and their citizens in certain matters. This “national” government has nevertheless blatantly and persistently exceeded its rightful powers. Moreover, much of what is done by all governments — not just the “national” government — is in fact unlawful at its core. There is a fundamental tenet of law — one that precedes and informs the Constitution — which is that “law” is law only when it serves the general welfare, regardless of its official status as an legislative, executive, or judicial act. Therefore, it is truly unlawful for the “national” government or any other government in the United States to interfere with the lives, liberty, or property of Americans for the purpose of promoting special interests, however laudable those interests may seem. And yet, the “laws” under which Americans labor are, in the main, enactments that serve special interests and the power-lust of politicians, bureaucrats, and judges. In sum, I want my country (and its various parts) to return to the true “rule of law,” which is to promote the general welfare by

protecting all Americans from their enemies within and without

ensuring the free movement of all Americans

ensuring the free exchange of goods and services

and nothing more.

One of the most insidious ways in which government interferes with our liberty is by exercising a subtle but powerful form of thought control. It is not the business of government to tell us what to believe or how we must arrive at our beliefs. But government — which puts it imprimatur on the vast majority of educational institutions and much of the “factual” information in many fields of endeavor — does all of those things. Thus, contrary to the intentions of the Founders, we have become a nation imbued with official beliefs about matters ranging from the origins of the universe to the goodness of our enemies to the climatic effects of (puny) human endeavors.

One of the key beliefs instilled by government — directly and through those who are in its thrall — is its beneficent role in our economic and social affairs. It never seems to occur to the proponents of governmental interference — or to its relatively few of its opponents — that there is a living, breathing case study which disproves the beneficence of economic meddling. When government spending and regulation played a tiny role in the economic affairs of the United States — from the 1790s to around 1900 — GDP grew at an annual rate of 4.2 percent. Now, with the regulatory-welfare state fully upon us, GDP grows at an annual rate of 3.1 percent (and falling). The difference between those two rates — when compounded over a generation, a lifetime, or a century — ranges from significantly large to enormous. The road to economic lassitude is paved by the good intentions of regulation and spending by government. Liberty — part of which is the right to make mistakes and benefit from the resulting lessons — is a collateral victim of regulatory zeal. Liberty is a victim of government spending, as well, because it deprives individuals of some portion of the rewards for their labor and capital, and the full enjoyment of those rewards.

With respect to social matters, there is only one way to put it: Government is an enemy of society. Its main mission, when you think about it for more than a minute, is to supplant voluntary and beneficial social arrangements with schemes hatched in the vacuum of intellectualism. It is as if there were nothing to the eons-long learning that is expressed in the Ten Commandments and Golden Rule, and embodied in churches, clubs, and other voluntary, private associations. We must, instead, take our social marching orders from elites, who have their own peculiar views of what is right and just: serial polygamy, pederasty, and infanticide, to name just a few things. The social engineering favored by intellectualoids arises not from the wisdom of tradition, which fosters stable, trusting, and supportive social relationships, but from idle theorizing and a large dose of adolescent and post-adolescent rebellion.

Now, after a more than a century of “progressive” destruction of the Constitution and its restraints on government, Americans no longer enjoy the protection of government and the self-policing restraints of social custom. Instead, Americans suffer the fads and whims of the self-anointed, whose legacy lingers after their departure from the scene.

Now, after more than a century of “progressive” interference in the economic affairs of Americans, our progeny face unaffordable financial commitments, which they will be expected to honor even as their standard of living withers under the assault of taxation and regulation.

Now, after more than a century of social experimentation in which anti-social behavior has been exalted and long-standing voluntary social arrangements and institutions have been stripped of their authority, too many of our progeny are hooked on hard drugs, casual sex, and gratuitous violence as forms of “entertainment” and as “lifestyles.”

I want my country back.

Experts and the Economy

In “Socialist Calculation and the Turing Test,” I wrote about the

suggestion … that one can emulate the outcomes that would be produced by competitive markets — if not something “better” — by writing rules that, if followed, would mimic the behavior of competitive markets.The problem with that suggestion … is that someone outside the system must make the rules to be followed by those inside the system.

And that’s precisely where socialist planning and regulation always fail. At some point not very far down the road, the rules will not yield the outcomes that spontaneous behavior would yield. Why? Because better rules cannot emerge spontaneously from rule-driven behavior….

Where, for instance, is there room in the socialist or regulatory calculus for a rule that allows for unregulated monopoly? Yet such an “undesirable” phenomenon can yield desirable results by creating “exorbitant” profits that invite competition (sometimes from substitutes) and entice innovation. (By “unregulated” I don’t mean that a monopoly should be immune from laws against force and fraud, which must apply to all economic actors.)

I suppose exogenous rules are all right if you want economic outcomes that accord with those rules. But such rules aren’t all right if you want economic outcomes that actually reflect the wants of consumers….

Of course, the whole point of socialist planning is to produce outcomes that are desired by planners. Those desires reflect planners’ preferences, as influenced by their perceptions of the outcomes desired by certain subsets of the populace. The immediate result may be to make some of those subsets happier, but at a great cost to everyone else and, in the end, to the favored subsets as well. A hampered economy produces less for everyone.

Socialism — a.k.a. “liberalism” — is all about reliance on experts. As Don Boudreaux says,

modern “liberalism’s” ideas are about replacing an unimaginably large multitude of diverse and competing ideas – each one individually chosen, practiced, assessed, and modified in light of what F.A. Hayek called “the particular circumstances of time and place” – with a relatively paltry set of ‘Big Ideas’ that are politically selected, centrally imposed, and enforced not by the natural give, take, and compromise of the everyday interactions of millions of people but, rather, by guns wielded by those whose overriding ‘idea’ is among the most simple-minded and antediluvian notions in history, namely, that those with the power of the sword are anointed to lord it over the rest of us.

Megan McArdle puts it this way:

So we get [from central planning] what most interests wordsmiths: a succession of enormous plans (health care exchanges! privatize social security!), most of which fail….

But all this makes me very skeptical of handing elites more power, particularly when they are given that power in order to reduce the autonomy of some other group. (And somehow, that usually is what it’s for–you haven’t seen much lobbying for better regulation of university professor quality, even though a bad idea is probably more dangerous than a bad apple.)

J.M. Keynes — the experts’ expert — said that “Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.” Keynes is the quintessential defunct economist, and mindless politicians (among others) are his slaves.

The “Forthcoming Financial Collapse”

I have written before about my membership in a Google Group

whose active members are retired scientists, engineers, mathematicians, and economists — some in their upper 80s — who worked on defense issues from the 1940s to the 2000s….

Most members of the group were government employees and/or employees of government contractors. Their attraction to government service — and its steady and rather handsome paychecks — derives, in good part, from their belief in the power of government to “solve problems,” and in the need for government to do just that. It is only natural, then, that many members of the group hold an unrealistically exalted view of the power of quantitative methods to “solve problems,” while holding naive views about the machinations of government, human nature, and history. (The pioneers of military operations research in the United States, by contrast, were realistic about the relative impotence of quantitative analysis of complex, dynamic processes.)

Here, for example, is a recent communication from one of the group’s older members:

A political scientist and former Foreign Service Officer friend proposes the following which, if valid, may complicate the U.S.’s capability to handle the forthcoming financial collapse of our country.

His formulation is as follows: (1) The World Trade Center attacks grievously damaged our self-confidence but did little but material damage. (2) On the other hand, the collapse of Lehman Brothers had impacts across the financial world and among the Central Banks of many countries. In effect, the U.S. was the instrument inflicting damage and loss on both trading partners and creditors.

Do we agree that the second is the more serious. What may be the dimensions of the impact?

If I were to reply, this is what I would say:

Your message is provocative in more than one respect. I won’t get into the material effect of the 9/11 attacks, except to say that the assessment that they caused “little material damage” seems to ignore the economic after-shock and the value of 3,000 lives lost. But I am more concerned with the policy implications of your friend’s formulation, and with what you call “the forthcoming financial collapse of our country.”

I have trouble with your friend’s formulation because it involves an irrelevant comparison. On the one hand, there was a deliberate attack on the U.S. by a foreign enemy. On the other hand, a major investment bank failed, in large part because of investments in bad securities that were issued pursuant to policies of the U.S. government (sub-prime mortgage loans and low interest rates). These are not mutually exclusive events, and should be considered separately in devising appropriate government policies (including a hands-off policy). I am sure that your friend would prefer fewer bank failures, but not at the cost of more terrorist attacks.

I turn now to government’s role (or lack thereof) in securing our economic future. Let’s begin with the collapse of Lehman Brothers. Lehman was allowed to fail because government officials didn’t want to send a “signal” that a bailout would be an automatic reward for failure. But those same officials, in their panic, reversed course with respect to other financial institutions and bailed them out. The bailouts didn’t really help credit markets (as they were supposed to) because — quite reasonably in the aftermath of a government-caused financial panic and recession — the bailed-out institutions (and others) have been slow to lend, while individuals and businesses have been slow to borrow. What the bailouts mainly did was to reinforce the view that government (i.e., taxpayers) will bear the costs of foolish endeavors — which only encourages banks (and other businesses) to undertake more foolish endeavors. The price for those endeavors will come due at the bursting of the next bubble, whatever it is and whenever it occurs.

If there is any lesson to be taken from the comparison offered by your friend, it is an old one that most Americans seem not to have learned: The real job of government is to protect citizens from foreign and domestic predators. Government does that badly enough (though I would rather have it done by government than by private parties, namely, warlords). Government is even worse at other things, like intervening in economic affairs, the unseen cost of which — in forgone economic output — dwarfs the amount spent by governments (at all levels) on defense and law-enforcement. This comparison is apt because we could better afford to pay for the protective services of government, were it to butt out of our economic affairs.

This brings me to “the forthcoming financial collapse of our country.” I assume that you refer to the huge obligations incurred by the federal government in the form of Social Security, Medicare, Medicaid — and the promised expansion of these by what has become known as Obamacare. These obligations, which now consume about 10 percent of GDP, will consume 25 percent of GDP before the end of this century. Add to them the cost of other governmental functions and the regulatory obstacles that government throws into the path of economic growth, and you do have something like an economic disaster in the making — but it may occur in slow motion (as it has for the past century), rather than in the form of a dramatic collapse.

One result of the slow-motion disaster could be a “sovereign debt crisis,” namely, the inability of the U.S. government to sell its debt except, perhaps, at very high rates of interest. In the alternative, the government, acting through the Fed, would simply “print money” in an effort to inflate its way out of the problem. But that would only make government debt less marketable while further stifling economic growth by creating great uncertainty in capital markets. The bottom line is that the “forthcoming financial collapse” — or its slow-motion equivalent — is of the government’s making, and can be averted only by getting government out of the business of running the inter-generational Ponzi schemes that we know as Social Security, Medicare, and Medicaid.

The real strength of the “country” is its people and their voluntary social and business arrangements. It is not government, which — contrary to the views of “progressives” — stands in the way of progress and prosperity.

The Price of Government: More Evidence

It is time to remind everyone of the economic toll that has been exacted by the growth of the regulatory-welfare state since the end of World War II:

Source: Bureau of Economic Analysis.

You will notice two things about the graph. First, the economy is cyclical, thanks in part to the actions of government (e.g., the low-interest, housing-bubble recession). Second, economic growth has declined from an annual rate of around 4 percent to an annual rate of about 2 percent, because of government.

The Illusion of Prosperity and Stability

For reasons I outlined in “The Price of Government,” the post-Civil War boom of 1866-1907 finally gave way to the onslaught of Progressivism. Real GDP grew at the rate of 4.3 percent annually during the post-Civil War boom; it has since grown at an annual rate of 3.3 percent. The difference between the two rates of growth, compounded over a century, is the difference between $13 trillion (2009’s GDP in 2005 dollars) and $41 trillion (2009’s potential GDP in 2005 dollars).

As I said in “The Price of Government,” this disparity

may seem incredible, but scan the lists here and you will find even greater cross-national disparities in per capita GDP. Go here and you will find that real, per capita GDP in 1790 was only 4.6 percent of the value it had attained 218 years later. Our present level of output seems incredible to citizens of impoverished nations, and it would seem no less incredible to an American of 1790. In sum, vast disparities can and do exist, across nations and time.

The main reason for the disparity is the intervention of the federal government in the economic affairs of Americans and their businesses. I put it this way in “The Price of Government”:

What we are seeing [in the present recession and government’s response to it] is the continuation of a death-spiral that began in the early 1900s. Do-gooders, worry-warts, control freaks, and economic ignoramuses see something “bad” and — in their misguided efforts to control natural economic forces (which include business cycles) — make things worse. The most striking event in the death-spiral is the much-cited Great Depression, which was caused by government action, specifically the loose-tight policies of the Federal Reserve, Herbert Hoover’s efforts to engineer the economy, and — of course — FDR’s benighted New Deal. (For details, see this, and this.)

But, of course, the worse things get, the greater the urge to rely on government. Now, we have “stimulus,” which is nothing more than an excuse to greatly expand government’s intervention in the economy. Where will it lead us? To a larger, more intrusive government that absorbs an ever larger share of resources that could be put to productive use, and counteracts the causes of economic growth.

One of the ostensible reasons for governmental intervention is to foster economic stability. That was an important rationale for the creation of the Federal Reserve System; it was an implicit rationale for Social Security, which moves income to those who are more likely to spend it; and it remains a key rationale for so-called counter-cyclical spending (i.e., “fiscal policy”) and the onerous regulation of financial institutions.

Has the quest for stability succeeded? If you disregard the Great Depression, and several deep recessions (including the present one), it has. But the price has been high. The green line in the following graph traces real GDP as it would have been had economic growth after 1907 followed the same path as it did in 1866-1907, with all of the ups and down in that era of relatively unregulated “instability.” The red line, which diverges from the green one after 1907, traces real GDP as it has been since government took over the task of ensuring stable prosperity.

Only by overlooking the elephant in the room — the Great Depression — can one assert that government has made the economy more stable. Only because we cannot see the exorbitant price of government can we believe that it has had something to do with our “prosperity.”

What about those fairly sharp downturns along the green line? If it really is important for government to shield us from economic shocks, there are much better ways of getting the job done that they ways now employed. There was no federal income tax during the post-Civil War boom (one of the reasons for the boom). Suppose that in the early 1900s the federal government had been allowed to impose a small, constitutionally limited income tax of, say, 0.5 percent on gross personal incomes over a certain level, measured in constant dollars (with an explicit ban on exemptions, deductions, and other adjustments, to keep it simple and keep interest groups from enriching themselves at the expense of others). Suppose, further, that the proceeds from the tax had a constitutionally limited use: the payment of unemployment benefits for a constitutionally limited time whenever real GDP declined from quarter to quarter.

Perhaps that’s too much clutter for devotees of constitutional simplicity. But wouldn’t the results have been worth the clutter? The primary result would have been growth at a rate close to that of 1866-1907, but with some of the wrinkles ironed out. The secondary result — and an equally important one — would have been the diminution (if not the elimination) of the “need” for governmental intervention in our affairs.

Our Miss Brooks

Some time back, Tom Smith referred to the NYT columnist and pseudo-conservative David Brooks as “prissy little Miss Brooks.” Smith’s recycling of the appellation has not diminished its satirical effect — or its substantive accuracy.

Miss Brooks recently cringed when she contemplated an America without government, in the aftermath of a victorious Tea Party movement. Miss Brooks, it seems, is besotted with the manliness of limited-but-energetic governments

that used aggressive [emphasis added] federal power to promote growth and social mobility. George Washington used industrial policy, trade policy and federal research dollars to build a manufacturing economy alongside the agricultural one. The Whig Party used federal dollars to promote a development project called the American System.

Abraham Lincoln supported state-sponsored banks to encourage development, lavish infrastructure projects, increased spending on public education. Franklin Roosevelt provided basic security so people were freer to move and dare. The Republican sponsors of welfare reform increased regulations and government spending — demanding work in exchange for dollars.

Throughout American history, in other words, there have been leaders who regarded government like fire — a useful tool when used judiciously and a dangerous menace when it gets out of control. They didn’t build their political philosophy on whether government was big or not. Government is a means, not an end. They built their philosophy on making America virtuous, dynamic and great. They supported government action when it furthered those ends and opposed it when it didn’t.

I am surprised that Miss Brooks was able to recover from her swoon and finish writing the column in question. I am less surprised that Miss Brooks omitted to mention Thomas “Louisiana Purchase” Jefferson and Theodore “I Can Do Whatever I Please” Roosevelt, given that Jefferson was an effete Francophile and Roosevelt was a squeaky-voiced nutcase.

Other than that, there are only two problems with Brooks’s prescription for beneficent government: The first is the impossibility of electing only those leaders who know how to use government power judiciously. The second problem is the assumption that the things wrought by Washington, Lincoln, et al. were judicious uses of government power.

As to the first problem, all I can do is note the number of times that a majority of Americans has been convinced of the goodness of a candidate, only to be disappointed — when not outraged — by his performance in office. Take LBJ, Nixon, Carter, G.H.W. Bush, Clinton, G.W. Bush, and Obama — please take them! –not to mention myriad Congress-critters and State and local office-holders.

The second problem is a problem for reasons that are evidentlybeyond Miss Brooks’s comprehension:

Government action isn’t cost-less. It absorbs resources that the private sector could have put to use.

Government officials, despite their (occasional) great deeds, are not gifted with superior knowledge about how to put those resources to use.

Private firms — when not shielded from competition and failure by governments — put resources to uses that satisfy the actual needs of consumers, as opposed to the whims (however high-minded) of politicians.

Private firms — when not shielded from competition and failure by government — use resources more efficiently than government.

In short, Miss Brooks, Washington may have been a great man for having led a rag-tag army to victory over the British, and Lincoln may have been a great man for having preserved the Union and (incidentally) freed the slaves, but neither man — and certainly no other man or collection of men exercising the arbitrary power of government — was or ever will be equal to the task of simulating the irreproducibly complex set of signals and decisions that are embedded in free markets.

In the end, Miss Brooks works herself into hysterics at the prospect of less government:

The social fabric is fraying. Human capital is being squandered. Society is segmenting. The labor markets are ill. Wages are lagging. Inequality is increasing. The nation is overconsuming and underinnovating. China and India are surging. Not all of these challenges can be addressed by the spontaneous healing powers of the market.

The social fabric is fraying precisely because government has pushed social institutions aside and made millions of Americans its dependents. Society is segmenting for the same reason, and also because millions of Americans are fed up with government and its dominance of their lives. Labor markets are ill and wages are lagging (compared to what?) because of various government actions that have slowed economic growth and caused (not for the first time) a deep recession. The nation is overconsuming (i.e., underinvesting) and underinnovating because of the aforesaid government-caused economic malaise, which (among other things) has reduced the demand for money (seen in the form of low interest rates) and the potential returns on innovative investments. That China and India are surging is no skin off our teeth; the more productive they are the less Americans have to pay for the goods and services they produce, and the more Americans can produce of other things — if government will only get off the back of American business.

None of these “challenges” would be challenges were it not for governmental interference in private social institutions and markets. As Ronald Reagan said in his first inaugural address, “In this present crisis, government is not the solution to our problem, government is the problem.” Amen.

So, Miss Brooks, I advise you to take two Valium and read Friedrich Hayek’s Nobel Prize lecture, “The Pretence of Knowledge.” Then pass it on to your politician friends.

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