Why Is Capitalism Under Attack from the Right?

Posted on November 29, 2019 by Loquitur Veritatem

Many conservatives, this one included, have been or are becoming critical of capitalism. Near the end of a recent post, for example, I say that

capitalism is an amoral means to material ends. It is not the servant of society, properly understood. Nor is it the servant of conservative principles, which include (inter alia) the preservation of traditional morality, both as an end and as a binding and civilizing force.

One aspect of capitalism is that it enables the accumulation of great wealth and power. The “robber barons” of the late 19th century and early 20th century accumulated great wealth by making possible the production of things (e.g., oil and steel) that made life materially better for Americans rich and poor.

Though the “robber barons” undoubtedly wielded political power, they did so in an age when mass media consisted of printed periodicals (newspapers and magazines). But newspapers and magazines never dominated the attention of the public in the way that radio, movies, television, and electronically transmitted “social media” do today. Moreover, there were far more printed periodicals then than now, and they offered competing political views (unlike today’s periodicals, which are mainly left of center, when not merely frivolous.)

Which is to say that the “robber barons” may have “bought and sold” politicians, but they weren’t in the business of — or very effective at — shaping public opinion. (f they had been, they wouldn’t have been targets of incessant attacks by populist politicians, and anti-trust legislation wouldn’t have been enacted to great huzzahs from the public.

Today’s “robber barons”, by contrast, have accumulated their wealth by providing products and services that enable them to shape public opinion. Joel Kotkin puts it this way:

In the past, the oligarchy tended to be associated with either Wall Street or industrial corporate executives. But today the predominant and most influential group consists of those atop a handful of mega-technology firms. Six firms—Amazon, Apple, Facebook, Google, Microsoft, and Netflix—have achieved a combined net worth equal to one-quarter of the nasdaq, more than the next 282 firms combined and equal to the GDP of France. Seven of the world’s ten most valuable companies come from this sector. Tech giants have produced eight of the twenty wealthiest people on the planet. Among the nation’s billionaires, all those under forty live in the state of California, with twelve in San Francisco alone. In 2017, the tech industry produced eleven new billionaires, mostly in California….

Initially many Americans, even on the left, saw the rise of the tech oligarchy as both transformative and positive. Observing the rise of the technology industry, the futurist Alvin Toffler prophesied “the dawn of a new civilization,”² with vast opportunities for societal and human growth. But today we confront a reality more reminiscent of the feudal past—with ever greater concentrations of wealth, along with less social mobility and material progress.

Rather than Toffler’s tech paradise, we increasingly confront what the Japanese futurist Taichi Sakaiya, writing three decades ago, saw as the dawn of “a high-tech middle ages.”³ Rather than epitomizing American ingenuity and competition, the tech oligarchy increasingly resembles the feudal lords of the Middle Ages. With the alacrity of the barbarian warriors who took control of territory after the fall of the Roman Empire, they have seized the strategic digital territory, and they ruthlessly defend their stake.

Such concentrations of wealth naturally seek to concentrate power. In the Middle Ages, this involved the control of land and the instruments of violence. In our time, the ascendant tech oligarchy has exploited the “natural monopolies” of web-based business. Their “super-platforms” depress competition, squeeze suppliers, and reduce opportunities for potential rivals, much as the monopolists of the late nineteenth century did. Firms like Google, Facebook, and Microsoft control 80 to 90 percent of their key markets and have served to further widen class divides not only in the United States but around the world.

Once exemplars of entrepreneurial risk-taking, today’s tech elites are now entrenched monopolists. Increasingly, these firms reflect the worst of American capitalism—squashing competitors, using indentured servants from abroad for upwards of 40 percent of their Silicon Valley workforce, fixing wages, and avoiding taxes—while creating ever more social anomie and alienation.

The tech oligarchs are forging a post-democratic future, where opportunity is restricted only to themselves and their chosen few. As technology investor Peter Thiel has suggested, democracy—based on the fundamental principles of individual responsibility and agency—does not fit comfortably with a technocratic mindset that believes superior software can address and modulate every problem. [“America’s Drift Toward Feudalism“, American Affairs Journal, Winter 2019]

I can’t deny that rise of the tech oligarchs and their willingness and ability to move public opinion leftward probably influenced my view of capitalism. Not that there’s anything wrong with that. It is evidence that, contra Keynes, I am not the slave of some defunct economist.

Will public opinion shift enough to cause the containment of today’s “robber barons”? I doubt it. Most Republican politicians are trapped by their pro-capitalist rhetoric. Most Democrat politicians are trapped by their ideological alignment with the the “barons” and the affluent classes that are dependent on and allied with them.

Putting in Some Good Words for Monopoly

Posted on September 17, 2019 by Loquitur Veritatem

Long ago and far away, when I studied economics, one of the first things that was drummed into my head was the badness of monopoly, oligopoly, and other forms of imperfect competition. The ideal, of course, is perfect competition because it

provides both allocative efficiency and productive efficiency:

Such markets are allocatively efficient, as output will always occur where marginal cost is equal to average revenue i.e. price (MC = AR). In perfect competition, any profit-maximizing producer faces a market price equal to its marginal cost (P = MC). This implies that a factor’s price equals the factor’s marginal revenue product. It allows for derivation of the supply curve on which the neoclassical approach is based. This is also the reason why “a monopoly does not have a supply curve”. The abandonment of price taking creates considerable difficulties for the demonstration of a general equilibrium except under other, very specific conditions such as that of monopolistic competition.

In the short-run, perfectly competitive markets are not necessarily productively efficient as output will not always occur where marginal cost is equal to average cost (MC = AC). However, in long-run, productive efficiency occurs as new firms enter the industry. Competition reduces price and cost to the minimum of the long run average costs. At this point, price equals both the marginal cost and the average total cost for each good (P = MC = AC).

All of this assumes that a market for a particular product or service is amenable to perfect competition. Economists recognize that such isn’t always the case (e.g., natural monopoly), but most of them nevertheless preach about the evils of market concentration (i.e., monopoly and other forms of less-than-perfect competition).

Contrarian economist Robin Hanson attacks the general view about the badness of market concentration in a pair of recent posts at his blog Overcoming Bias (here and here):

Many have recently said 1) US industries have become more concentrated lately, 2) this is a bad thing, and 3) inadequate antitrust enforcement is in part to blame….

I’m teaching grad Industrial Organization again this fall, and in that class I go through many standard simple (game-theoretic) math models about firms competing within industries. And occurs to me to mention that when these models allow “free entry”, i.e., when the number of firms is set by the constraint that they must all expect to make non-negative profits, then such models consistently predict that too many firms enter, not too few. These models suggest that we should worry more about insufficient, not excess, concentration.

* * *

My last post talked about how our standard economic models of firms competing in industries typically show industries having too many, not too few, firms. It is a suspicious and damning fact that economists and policy makers have allowed themselves and the public to gain the opposite impression, that our best theories support interventions to cut industry concentration.

My last post didn’t mention the most extreme example of this, the case where we have the strongest theory reason to expect insufficient concentration: [multi-monopoly]….

The coordination failure among these firms is severe. It produces a much lower quantity and welfare than would result if all these firms were merged into a single monopolist who sold a single merged product. So in this case the equilibrium industry concentration is far too low.

Hanson’s posts caught my eye because I am pleased that at least one practicing academic economist agrees with me. Somewhat long ago, I put it this way (with light editing and block-quotation format omitted for ease of reading):

Regulators live in a dream world. They believe that they can emulate — and even improve on — the outcomes that would be produced by competitive markets. And that’s precisely where regulation fails: Bureaucratic rules cannot be devised to respond to consumers’ preferences and technological opportunities in the same ways that markets respond to those things. The main purpose of regulation (as even most regulators would admit) is to impose preferred outcomes, regardless of the immense (but mostly hidden) cost of regulation.

There should be a place of honor in regulatory hell for those who pursue “monopolists”, even though the only true monopolies are run by governments or exist with the connivance of governments (think of courts and cable franchises, for example). The opponents of “monopoly” really believe that success is bad. Those who agitate for antitrust actions against successful companies — branding them “monopolistic” — are stuck in a zero-sum view of the economic universe, in which “winners” must be balanced by “losers”. Antitrusters forget (if they ever knew) that (1) successful companies become successful by satisfying consumers; (2) consumers wouldn’t buy the damned stuff if they didn’t think it was worth the price; (3) “immense” profits invite competition (direct and indirect), which benefits consumers; and (4) the kind of innovation and risk-taking that (sometimes) leads to wealth for a few also benefits the many by fueling economic growth.

What about those “immense” profits? They don’t just disappear into thin air. Monopoly profits (“rent” in economists’ jargon) have to go somewhere, and so they do: into consumption, investment (which fuels economic growth), and taxes (which should make liberals happy). It’s just a question of who gets the money.

But isn’t output restricted, thus making people generally worse off? That may be what you learned in Econ 101, but that’s based on a static model which assumes that there’s a choice between monopoly and competition. In fact:

Monopoly (except when it’s gained by force, fraud, or government license) usually is a transitory state of affairs resulting from invention, innovation, and/or entrepreneurial skill.

Transitory? Why? Because monopoly profits invite competition — if not directly, then from substitutes.

Transitory monopolies arise as part of economic growth. Therefore, such monopolies exist as a “bonus” alongside competitive markets, not as alternatives to them.

The prospect of monopoly profits entices more invention, innovation, and entrepreneurship, which fuels more economic growth.

(See also “Socialist Calculation and the Turing Test“, “Monopoly: Private Is Better Than Public“, and “The Rahn Curve in Action“, which quantifies the stultifying effects of government spending and regulation.)

Preemptive (Cold) Civil War, Without Delay

Posted on April 5, 2018 by Loquitur Veritatem

I make the case for a preemptive (cold) civil war here. Here are some key passages:

Apple, Google, Facebook, Microsoft, Amazon, and other information-technology companies represent just one facet of the complex of institutions in the thought-control business.

A second facet consists of the so-called mainstream media (MSM) — the print and broadcast outlets that for the most part, and for many decades, have exploited their protected status under the First Amendment to heavily lard their offerings with “progressive” propaganda. MSM’s direct influence via the internet has been diluted slightly by the plethora of alternative sources, many of them libertarian and conservative, but Google and friends do a good job of throttling the alternative sources.

I need say little about a third facet — the “entertainment” industry — which also exploits its First-Amendment privilege to spew left-wing propaganda.

The academy and its spawn, public ~~education~~ indoctrination, form a fourth facet. The leftward tilt of most academic administrations and goodly chunks of the professoriate is no secret. Neither is the stultifying atmosphere on college campuses….

These information-entertainment-media-academic institutions are important components of what I call the vast left-wing conspiracy in America. Their purpose and effect is the subversion of the traditional norms that made America a uniquely free, prosperous, and vibrant nation….

Clearly, the information-entertainment-media-academic complex is striving for a monopoly on the expression and transmission of political thought in America. Such a monopoly would be tantamount to state action (see this and this), and must therefore be prevented before it can be perfected. For, if it can be perfected, the First Amendment will quickly become obsolete.

But there’s far more at stake than the First Amendment. As Malcolm Pollack puts it,

the tremendous fissure in American culture and politics…. goes far deeper than mere disagreements about policy; it has reached the point in which the two sides have entirely different conceptions of moral, political, cultural, social, historical, and even human reality — views that are not only incommensurable, but mutually and bitterly antagonistic.

Complete victory for the enemies of liberty is only a few election cycles away. The squishy center of the American electorate — as is its wont — will swing back toward the Democrat Party. With a Democrat in the White House, a Democrat-controlled Congress, and a few party switches in the Supreme Court, the dogmas of the information-entertainment-media-academic complex will become the law of the land….

Are my fears exaggerated? I don’t think so. I have lived long enough and seen enough changes in the political and moral landscape of the United States to know that what I have sketched out can easily happen within a decade after Democrats seize total control of the central government….

All bets will be off when Democrats regain control of the central government….

What kind of action do I have in mind?

Go to the original post and you will see.

Here’s a hint from a piece by Scott McKay:

[W]e’re well past the point where we start discussing Google as an old-fashioned trust which can be dealt a similar fate to Ma Bell and Standard Oil. And we’re also past the point where the market can start looking for The Next Big Thing in terms of social media platforms to migrate to.

I am revisiting this matter because the need for immediate action becomes more obvious every day. Consider the abrupt firing of Kevin Williamson from The Atlantic (and I’m not a slavish Williamson fan).

Consider especially the following prescient piece, written before the 2016 election, which eerily anticipates my earlier post:

It’s now abundantly clear that most of Conservatism, Inc. wants Trump to lose and is giddy at the prospect. They’re dancing not just on his political grave (prematurely, and perhaps mistakenly) but on the supposed despondency of the rest of us over Trump’s presumed impending loss….

What do they expect from the outcome—the regime—they are manifestly rooting for? The second possible explanation is they must think a Hillary Clinton administration won’t be so bad—for them. Does this mean they admit, if only implicitly, that it might be bad for the rest of us?…

“Yes, we’ve been fulminating for a generation against this specific person, her specific policies, and those of her party. Did we mean it? Of course we did! So why are we acting to help her win now? What a question! We’re not doing that! We’re merely denouncing her opponent as uniquely unfit in the history of the republic. So we don’t think her policies will be that bad after all? Oh, they will be bad. But survivable. The same way that Obama and the past 100 years of Progressive liberalism have been survivable? Well, when you put it that way—yes.

“Do we think that mass amnesty and massive refugee inflows won’t tip the electorate permanently into Democratic Party’s camp? No, of course not. That’s racist! All we have to do is Refine Our Message. Bring out the “natural conservatism” of Family Values Hispanics and Religious Muslims.”…

I will spare you more of this insipid banter. I toss it out only so that you may better understand the mind of the modern “conservative.”

Personally, I think what’s coming for them will not be as rosy as they assume. At first, little will change. At first. The think-tank, think-mag archipelago will go on as before. Subscriptions may be down a bit, but the checks will still roll in. For a while.

But I suspect that over time two things will happen. First, Conservatism, Inc.’s donors will wake to the enterprise’s utter uselessness and stop, or at least begin to slow, the money flow. In the beginning, this will feel like uncomfortable belt-tightening, but survivable. No conference in Palm Beach this year, but we still have the cruise! Then as the economy continues to drag and rates, returns, and yields remain rock-bottom low, the donors will pull the plug, calculating (correctly) that they’ve wasted quite enough for zero effect. Last may be personally insulated from this, since The Weekly Standard is owned by a very deep-pocketed billionaire. But the rest of Conservatism, Inc. isn’t and I expect it to dwindle into irrelevance—not in terms of influence (that already happened) but in funding, personnel, and size.

That is, if it doesn’t simply go out of business altogether.

If I may, as an aside, respond to an anticipated objection: How can this idiot Decius say that we have no influence while at the same time accusing us of electing Hillary? To which I reply: You have as much influence as the Megaphone—the mass media and cultural elites—allow you to have. When you are committing fratricide against “your” party’s nominee, of course the Left is happy to use the Megaphone to let you amplify its message.

But the time is coming when you will no longer be so useful, which points to my second expectation. I believe the Left, as it increasingly feels its oats, will openly discard the pretense that it need face any opposition. It’s already started. This will rise to a crescendo during the 2020 election, which the Left will of course win, after which it will be open-season on remaining “conservative” dissent. Audits. Investigations. Prosecutions. Regulatory dictates. Media leaks. Denunciations from the bully pulpit. SJW witch-hunts. The whole panoply of persecution tools now at their disposal, plus some they’ve yet to deploy or invent. [Publius Decius Mus, “It’s Clear That Conservatism Inc. Wants Trump to Lose“, American Greatness, October 12, 2016]

It can still happen here: 2020 is only two years away. The squishy center, having been bombarded by anti-Trump propaganda for four years is just as likely to turn against him as to re-elect him.

There’s no time to lose. The preemptive (cold) civil war must start yesterday.

Preemptive (Cold) Civil War

Posted on March 18, 2018 by Loquitur Veritatem

Parts I – IV are recommended as supplemental to “The Constitution: Myths and Realities“, which adapts the action recommendations of part V.

I. PROLOGUE

This post is driven by what I have seen of leftism over the years. Just a few hours before its scheduled publication I read a piece by Richard Jack Rail, “Our America or Theirs“, which captures the fighting spirit of this post:

Our adversary is nasty and pitiless. These people cheat, lie, and kill, and they don’t care about the country. They tout honor they don’t have and accuse us of having none.

We are facing evil and its fruits.

We can’t just let it go anymore. There is no place left for us to retreat to. For decades, we’ve let them get away with their rowdy, insulting, destructive behavior. We’ve pretended they meant well when we knew they did not. We’ve allowed them to get away with their lies because it was so unpleasant fighting all the time.

We can’t do that anymore. It’s time to draw lines in the sand and fight back. Put them in prison and keep them there for crimes, rather than slap their wrists and pretend they’re harmless. Forcibly shut them up when they try to forcibly shut us up. Meet their obnoxious behavior with our own obnoxious behavior.

This is what they’ve pushed toward for 50 years, and it’s time to give it back to them. They have taken over the closest thing we have to a national police force – the FBI – and corrupted it at its core, using police powers not to protect America or U.S. citizens, but to go after political foes. This is the very definition of tyranny….

… There’s no “give” left.

It’s our America or theirs.

II. EXHIBIT A: THE WAR ON THE FIRST AMENDMENT

I hereby retract something that I said in “Leftism as Crypto-Fascism: The Google Paradigm“:

Google is a private company. I strongly support the right of private employers to fire anyone at any time for any reason. I am not here to condemn Google for having fired James Damore, the author of the now-notorious 10-page memo about Google’s ideological echo chamber.

Later in the same post, however, I said this:

What happened to James Damore is what happens where leftists control the machinery of the state.

Given the influence that Google and the other members of the left-wing information-technology oligarchy exerts in this country, that oligarchy is tantamount to a state apparatus. As Joel Kotkin puts it,

Silicon Valley is turning into something more of an emerging axis of evil. “Brain-hacking” tech companies such as Apple, Google, Facebook, Microsoft and Amazon, as one prominent tech investor puts it, have become so intrusive as to alarm critics on both right and left.

Firms like Google, which once advertised themselves as committed to being not “evil,” are now increasingly seen as epitomizing Hades’ legions. The tech giants now constitute the world’s five largest companies in market capitalization. Rather than idealistic newcomers, they increasingly reflect the worst of American capitalism — squashing competitors, using indentured servants, attempting to fix wages, depressing incomes, creating ever more social anomie and alienation.

At the same time these firms are fostering what British academic David Lyon has called a “surveillance society” both here and abroad. Companies like Facebook and Google thrive by mining personal data, and their only way to grow, as Wired recently suggested, was, creepily, to “know you better.” [“How Silicon Valley Went from ‘Don’t Be Evil’ to Doing Evil“, The Orange County Register, March 3, 2018]

Apple, Google, Facebook, Microsoft, Amazon, and other information-technology companies represent just one facet of the complex of institutions in the thought-control business.

A second facet consists of the so-called mainstream media (MSM) — the print and broadcast outlets that for the most part, and for many decades, have exploited their protected status under the First Amendment to heavily lard their offerings with “progressive” propaganda. MSM’s direct influence via the internet has been diluted slightly by the plethora of alternative sources, many of them libertarian and conservative, but Google and friends do a good job of throttling the alternative sources.

I need say little about a third facet — the “entertainment” industry — which also exploits its First-Amendment privilege to spew left-wing propaganda.

The academy and its spawn, public ~~education~~ indoctrination, form a fourth facet. The leftward tilt of most academic administrations and goodly chunks of the professoriate is no secret. Neither is the stultifying atmosphere on college campuses:

Sixty-one percent of U.S. college students agree that the climate on their campus prevents some people from expressing their views because others might find them offensive. In 2016, 54% of college students held this view.

These results are based on a 2017 Gallup/Knight Foundation survey of 3,014 randomly sampled U.S. college students about First Amendment issues. The survey is an update of a 2016 Knight Foundation/Newseum Institute/Gallup survey on the same topic….

While more students now agree that their campus climate stifles free speech, fewer students now (70%) than in 2016 (78%) favor having an open campus environment that allows all types of speech, even that which is offensive. In contrast, 29% of students now, up from 22% in 2016, would rather campuses be “positive learning environments for all students” by prohibiting certain speech that is offensive or biased….

When students perceive the campus climate as deterring certain people from speaking their minds, they may have conservative students in mind more than others. Sixty-nine percent of college students believe political conservatives can freely and openly express their views on campus. While still a majority, it is far less than the 92% who say the same about political liberals. Between 80% and 94% of students believe other campus groups, including many that have historically faced discrimination, can freely express their views. [quotations from a Gallup/Knight survey by William A. Jacobson in “Gallup/Knight Survey Shows Free Speech Crisis for Conservatives on Campus Is Real“, Legal Insurrection, March 12. 2018]

On top of that, there are the hordes of public-school teachers who are the willing adherents and disciples of the “progressive” orthodoxy, which they gleefully transmit to captive and impressionable students across the land.

III. THE BROADER, DEEPER PROBLEM: SUBVERSION OF LIBERTY AND PROSPERITY

These information-entertainment-media-academic institutions are important components of what I call the vast left-wing conspiracy in America. Their purpose and effect is the subversion of the traditional norms that made America a uniquely free, prosperous, and vibrant nation.

It is what Professors Amy Wax and Larry Alexander wrote about several months ago:

Too few Americans are qualified for the jobs available. Male working-age labor-force participation is at Depression-era lows. Opioid abuse is widespread. Homicidal violence plagues inner cities. Almost half of all children are born out of wedlock, and even more are raised by single mothers. Many college students lack basic skills, and high school students rank below those from two dozen other countries.

The causes of these phenomena are multiple and complex, but implicated in these and other maladies is the breakdown of the country’s bourgeois culture.

That culture laid out the script we all were supposed to follow: Get married before you have children and strive to stay married for their sake. Get the education you need for gainful employment, work hard, and avoid idleness. Go the extra mile for your employer or client. Be a patriot, ready to serve the country. Be neighborly, civic-minded, and charitable. Avoid coarse language in public. Be respectful of authority. Eschew substance abuse and crime.

These basic cultural precepts reigned from the late 1940s to the mid-1960s. They could be followed by people of all backgrounds and abilities, especially when backed up by almost universal endorsement. Adherence was a major contributor to the productivity, educational gains, and social coherence of that period.

Did everyone abide by those precepts? Of course not. There are always rebels — and hypocrites, those who publicly endorse the norms but transgress them. But as the saying goes, hypocrisy is the homage vice pays to virtue. Even the deviants rarely disavowed or openly disparaged the prevailing expectations….

… The loss of bourgeois habits seriously impeded the progress of disadvantaged groups. That trend also accelerated the destructive consequences of the growing welfare state, which, by taking over financial support of families, reduced the need for two parents. A strong pro-marriage norm might have blunted this effect. Instead, the number of single parents grew astronomically, producing children more prone to academic failure, addiction, idleness, crime, and poverty.

This cultural script began to break down in the late 1960s. A combination of factors — prosperity, the Pill, the expansion of higher education, and the doubts surrounding the Vietnam War — encouraged an antiauthoritarian, adolescent, wish-fulfillment ideal — sex, drugs, and rock-and-roll — that was unworthy of, and unworkable for, a mature, prosperous adult society….

And those adults with influence over the culture, for a variety of reasons, abandoned their role as advocates for respectability, civility, and adult values. As a consequence, the counterculture made great headway, particularly among the chattering classes — academics, writers, artists, actors, and journalists — who relished liberation from conventional constraints and turned condemning America and reviewing its crimes into a class marker of virtue and sophistication.

All cultures are not equal. Or at least they are not equal in preparing people to be productive in an advanced economy. The culture of the Plains Indians was designed for nomadic hunters, but is not suited to a First World, 21st-century environment. Nor are the single-parent, antisocial habits, prevalent among some working-class whites; the anti-“acting white” rap culture of inner-city blacks; the anti-assimilation ideas gaining ground among some Hispanic immigrants. These cultural orientations are not only incompatible with what an advanced free-market economy and a viable democracy require, they are also destructive of a sense of solidarity and reciprocity among Americans. If the bourgeois cultural script — which the upper-middle class still largely observes but now hesitates to preach — cannot be widely reinstated, things are likely to get worse for us all….

… Among those who currently follow the old precepts, regardless of their level of education or affluence, the homicide rate is tiny, opioid addiction is rare, and poverty rates are low. Those who live by the simple rules that most people used to accept may not end up rich or hold elite jobs, but their lives will go far better than they do now. All schools and neighborhoods would be much safer and more pleasant. More students from all walks of life would be educated for constructive employment and democratic participation.

But restoring the hegemony of the bourgeois culture will require the arbiters of culture — the academics, media, and Hollywood — to relinquish multicultural grievance polemics and the preening pretense of defending the downtrodden. Instead of bashing the bourgeois culture, they should return to the 1950s posture of celebrating it. [“Paying the Price for the Breakdown of the Country’s Bourgeois Culture”, The Inquirer, August 9, 2017]

Needless to say, Alexander and Wax have been vilified and threatened with physical harm for daring to speak truth to the power of the vast left-wing conspiracy.

What will happen in America if that conspiracy succeeds in completely overthrowing “bourgeois culture”? The left will frog-march America in whatever utopian direction captures its “feelings” (but not its reason) at the moment; for example:

eugenics, prohibition, repeal of prohibition, peace through unilateral disarmament, overpopulation, global cooling, peak oil, global warming, carbon footprints, recycling, income inequality, unconscious racism, white privilege, forced integration, forced segregation (if blacks want it), coeducation, mixed-sexed dorms, single-sex schools, any reference to or image of a firearm, keeping score, winning, cultural appropriation, diversity, globalization, free speech (not), homophobia, same-sex “marriage”, smoking, gender “assignment” at birth, “free” college for all, “settled science”, collective guilt (but only of straight, white, conservative males of European descent, and Germans in 1933-1945), racial profiling and stereotyping (except when leftists do it), etc., etc., etc.

Further,

leftism’s utopian agenda has a chance of success only if everyone is forced to hew to its dictates. There’s no room in utopia for dissent or learning by trial and error — the kind of learning that fuels economic progress and yields stabilizing social norms.

The fact that a dictated utopian agenda really has no chance of success is beyond the imagining of a leftist. We have already seen what such an agenda does to economic progress, social comity, and liberty in places like the Soviet Union, Eastern Europe, China, Cuba, and Venezuela.

It is no coincidence that American leftists have always been quick to rationalize, dismiss, and cover up the brutal consequences of the regimes in those places. They have had exactly the kind of governance that leftists seek to bring to the United States as a whole, and have almost succeeded in imposing on many large cities and not a few Blue States.

Leftists are utopians, driven by impossible dreams and hooked on the nirvana fallacy. They are therefore immune to facts, and doomed to repeat the harsh lessons of history. Which would be fine if leftists governed only their ilk, but they are intent on making their fellow citizens suffer along with them — and they have succeeded far too well.

Clearly, the information-entertainment-media-academic complex is striving for a monopoly on the expression and transmission of political thought in America. Such a monopoly would be tantamount to state action (see this and this), and must therefore be prevented before it can be perfected. For, if it can be perfected, the First Amendment will quickly become obsolete.

But there’s far more at stake than the First Amendment. As Malcolm Pollack puts it,

the tremendous fissure in American culture and politics…. goes far deeper than mere disagreements about policy; it has reached the point in which the two sides have entirely different conceptions of moral, political, cultural, social, historical, and even human reality — views that are not only incommensurable, but mutually and bitterly antagonistic.

IV. THE END IS NEAR … ABSENT BOLD ACTION

Complete victory for the enemies of liberty is only a few election cycles away. The squishy center of the American electorate — as is its wont — will swing back toward the Democrat Party. With a Democrat in the White House, a Democrat-controlled Congress, and a few party switches in the Supreme Court, the dogmas of the information-entertainment-media-academic complex will become the law of the land; for example:

Billions and trillions of dollars will be wasted on various “green” projects, including but far from limited to the complete replacement of fossil fuels by “renewables”, with the resulting impoverishment of most Americans, except for comfortable elites who press such policies).

It will be illegal to criticize, even by implication, such things as abortion, illegal immigration, same-sex marriage, transgenderism, anthropogenic global warming, or the confiscation of firearms. These cherished beliefs will be mandated for school and college curricula, and enforced by huge fines and draconian prison sentences (sometimes in the guise of “re-education”).

Any hint of Christianity and Judaism will be barred from public discourse, and similarly punished. Other religions will be held up as models of unity and tolerance.

Reverse discrimination in favor of females, blacks, Hispanics, gender-confused persons, and other “protected” groups will become overt and legal. But “protections” will not apply to members of such groups who are suspected of harboring libertarian or conservative impulses.

Sexual misconduct will become a crime, and any male person may be found guilty of it on the uncorroborated testimony of any female who claims to have been the victim of an unwanted glance, touch (even if accidental), innuendo (as perceived by the victim), etc.

There will be parallel treatment of the “crimes” of racism, anti-Islamism, nativism, and genderism.

All health care in the United States will be subject to review by a national, single-payer agency of the central government. Private care will be forbidden, though ready access to doctors, treatments, and medications will be provided for high officials and other favored persons. The resulting health-care catastrophe that befalls most of the populace (like that of the UK) will be shrugged off as a residual effect of “capitalist” health care.

The regulatory regime will rebound with a vengeance, contaminating every corner of American life and regimenting all businesses except those daring to operate in an underground economy. The quality and variety of products and services will decline as their real prices rise as a fraction of incomes.

The dire economic effects of single-payer health care and regulation will be compounded by massive increases in other kinds of government spending (defense excepted). The real rate of economic growth will approach zero.

The United States will maintain token armed forces, mainly for the purpose of suppressing domestic uprisings. Given its economically destructive independence from foreign oil and its depressed economy, it will become a simulacrum of the USSR and Mao’s China — and not a rival to the new superpowers, Russia and China, which will largely ignore it as long as it doesn’t interfere in their pillaging of respective spheres of influence. A policy of non-interference (i.e., tacit collusion) will be the order of the era in Washington.

Though it would hardly be necessary to rig elections in favor of Democrats, given the flood of illegal immigrants who will pour into the country and enjoy voting rights, a way will be found to do just that. The most likely method will be election laws requiring candidates to pass ideological purity tests by swearing fealty to the “law of the land” (i.e., abortion, unfettered immigration, same-sex marriage, freedom of gender choice for children, etc., etc., etc.). Those who fail such a test will be barred from holding any kind of public office, no matter how insignificant.

Are my fears exaggerated? I don’t think so. I have lived long enough and seen enough changes in the political and moral landscape of the United States to know that what I have sketched out can easily happen within a decade after Democrats seize total control of the central government.

Will the defenders of liberty rally to keep it from happening? Perhaps, but I fear that they will not have a lot of popular support, for three reasons:

First, there is the problem of asymmetrical ideological warfare, which favors the party that says “nice” things and promises “free” things.

Second, What has happened thus far — mainly since the 1960s — has happened slowly enough that it seems “natural” to too many Americans. They are like fish in water who cannot grasp the idea of life in a different medium.

Third, although change for the worse has accelerated in recent years, it has occurred mainly in forums that seem inconsequential to most Americans, for example, in academic fights about free speech, in the politically correct speeches of Hollywood stars, and in culture wars that are conducted mainly in the blogosphere. The unisex-bathroom issue seems to have faded as quickly as it arose, mainly because it really affects so few people. The latest gun-control mania may well subside — though it has reached new heights of hysteria — but it is only one battle in the broader civil war being waged by the left. And most Americans lack the political and historical knowledge to understand that there really is a civil war underway — just not a “hot” one (yet).

V. A PREEMPTIVE STRATEGY TO PRESERVE LIBERTY AND PROSPERITY

As a firm believer in preemptive war as a means of preserving liberty, I recently recommended this “war” strategy:

The only way out, as I see it, is for majorities of the people some States to demand that their governments resist Leviathan by selectively ignoring some of its decrees. If California can do it, surely some of the 15 States that went for Trump by more than 60 percent can do it.

Once the ice is broken, nullification — the refusal to abide by unconstitutional laws and decrees emanating from Washington — will become a national movement. Federalism will return after an absence of almost 90 years. National “democracy” will be a thing of the past. The citizens of each State will have greater control over the reach of government into their lives. It won’t be nirvana, but it will be better than the present state of affairs.

Quasi-secession, as I would call it, is the only peaceful way out. It’s the only “democratic” way out. If that doesn’t work, there’s always the real thing, which is legal.

But, as I have said elsewhere, there’s an underlying problem that won’t be solved by quasi-secession or even by the real thing:

I am … pessimistic about the willingness of the left to allow a return to the true federalism that was supposed to have been ensured by the Constitution. The left’s mantra is control, control, control — and it will not relinquish its control of the machinery of government. The left’s idea of liberty is the “liberty” to follow its dictates.

All bets will be off when Democrats regain control of the central government. And there is precious little time in which to default to federalism, either through quasi-secession or the real things (which even deep-Red States are likely to resist). An Article V convention of the States might do the job. But it would take too many years in which to authorize, organize and complete a convention, and to implement the new guarantees of liberty that (should) issue from such a convention.

Add a convention of the States to the several other options that I outlined a few years ago, and you have a nice, round 10 ways of restoring liberty (not all of them mutually exclusive). All of the options are flawed in one way or another, and (except for a risky coup) are unlikely to have decisive results.

There is an eleventh option, which I have discussed elsewhere, one that could be exercised now — and with decisive results. It is departmentalism. What is that? Here’s an explanation by Matthew J. Franck:

It’s one thing to say that the Supreme Court, at the apex of the federal judiciary, has a binding authority over the states to see that the Constitution means the same thing in every part of the country, when cases and controversies necessitate the performance of this duty. It is quite another thing to say, as [the Supreme Court in] Cooper [v. Aaron] did, that Supreme Court rulings are “the supreme law of the land” owing to an exact identity with the Constitution itself, and thus binding with Article VI force on all rival interpreters of the Constitution. From this it would follow that Congress and the president, no less than the states, are bound by their oaths to accept Supreme Court decisions as binding expositions of the meaning of the Constitution.

That is the proposition that departmentalism challenges, and rightly so.

Michael Stokes Paulsen and Luke Paulsen, writing in The Constitution: An Introduction, put it more directly:

All branches of government are equally bound by the Constitution. No branch of the federal government— not the Congress, not the President, not even the Supreme Court— can legitimately act in ways contrary to the words of the Constitution. Indeed, Article VI requires that all government officials— legislative, executive, and judicial, state and federal—“ shall be bound by Oath or Affirmation, to support this Constitution.” Thus, the idea of a written constitution is closely tied to the idea of constitutional supremacy: In America, no branch of government is supreme. The government as a whole is not supreme. The Constitution is supreme. It is the written Constitution that prevails over every other source of authority in the United States.

Here’s what needs to happen, and happen soon:

Compile a documented dossier of the statutes, regulations, and judicial decisions of the United States government that grievously countermand the Constitution. Such a tabulation would include, but be far from limited to, enactments like Social Security, Medicare, Medicaid, and Obamacare that aren’t among the limited and enumerated powers of Congress, as listed in Article I, Section 8. They would also include judicial interference in matters that are rightly the president’s, under the Constitution and constitutional laws and regulations.

Prioritize the list, roughly according to the degree of damage each item does to the liberty and prosperity of Americans.

Re-prioritize the list, to eliminate or reduce the priority of items that would be difficult or impossible to act on quickly. For example, although Social Security, Medicare, and Medicaid are unconstitutional, they have been around so long that it would be too disruptive and harmful to eliminate them without putting in place a transition plan that takes many years to execute.

Of the remaining high-priority items, some will call for action (e.g., implementation of the “travel ban” before the Supreme Court can act on it); some will call for passivity (e.g., allowing individual States to opt out of federal programs without challenging those States in court).

Mount a public-relations offensive to explain departmentalism and its benefits, with hints as to the kinds of actions that will be taken to reassert the primacy of the Constitution.

Announce the actions to be taken with regard to each high-priority item. There would be — for general consumption — a simplified version that explains the benefits to individuals and the country as a whole. There would also be a full, legal explanation of the constitutional validity of each action. The legal explanation would be “for the record”, in the likely event of a serious attempt to impeach the president and his “co-conspirators”. The legal version would be the administration’s only response to judicial interventions, which the administration would ignore.

One of the actions would be to enforce the First Amendment against information-entertainment-media-academic complex. This would begin with action against high-profile targets (e.g., Google and a few large universities that accept federal money). That should be enough to bring the others into line. If it isn’t, keep working down the list until the miscreants cry uncle.

What kind of action do I have in mind? This is a delicate matter because the action must be seen as rescuing the First Amendment, not suppressing it; it must be taken solely by the executive; and it must comport with legitimate authority already vested in the executive. Even then, the hue and cry will be deafening, as will the calls for impeachment. It will take nerves of steel to proceed on this front.

Here’s a way to do it:

EXECUTIVE ORDER NO. __________

The Constitution is the supreme law of the land. (Article V.)

Amendment I to the Constitution says that “Congress shall make no law … abridging the freedom of speech”.

Major entities in the telecommunications, news, entertainment, and education industries have exerted their power to suppress speech because of its content. (See appended documentation.) The collective actions of these entities — many of them government- licensed and government-funded — effectively constitute a governmental violation of the Constitution’s guarantee of freedom of speech (See Smith v. Allwright, 321 U.S. 649 (1944) and Marsh v. Alabama, 326 U.S. 501 (1946).)

As President, it is my duty to “take Care that the Laws be faithfully executed”. The Constitution’s guarantee of freedom of speech is a fundamental law of the land.

Therefore, by the authority vested in me as President by the Constitution, it is hereby ordered as follows:

1. The United States Marshals Service shall monitor the activities of the entities listed in the appendix, to ascertain whether those entities are discriminating against persons or groups based on the views, opinions, or facts expressed by those persons or groups.

2. Wherever the Marshals Service observes effective discrimination against certain views, opinions, or facts, it shall immediately countermand such discrimination and order remedial action by the offending entity.

3. Officials and employees of the entities in question who refuse to cooperate with the Marshals Service, or to follow its directives pursuant to this Executive Order, shall be suspended from duty but will continue to be compensated at their normal rates during their suspensions, however long they may last.

4. This order shall terminate with respect to a particular entity when the President is satisfied that the entity will no longer discriminate against views, opinions, or facts on the basis of their content.

5. This order shall terminate in its entirety when the President is satisfied that freedom of speech has been restored to the land.

(Note to constitutional law experts: Please chime in.)

VI. NOTHING TO LOSE BY TRYING

The drastic actions recommended here are necessary because of the imminent danger to what is left of Americans’ liberty and prosperity. (See IV.) The alternative is to do nothing and watch liberty and prosperity vanish from view. There is nothing to be lost, and much to be gained.

There is now a man in the White House who seems to have the nerve and commitment to liberty that is called for. Another such president is unlikely to come along before it’s too late.

I beseech you, Mr. Trump, to strike preemptively now … for the sake of America’s liberty and prosperity.

Related reading:
Niall Ferguson, “Tech vs. Trump: The Great Battle of Our Time Has Begun“, The Spectator, October 17, 2017
Christian Gonzalez, “Looking through an Ideological Lens at Columbia“, Heterodox Academy, March 15, 2018
Brandon Moore, “The Censorship of Conservatives on the Internet Is Approaching Critical Levels of Bad“, Red State, March 15, 2018
Nikita Vladimirov, “Scholar Traces Current ‘Campus Intolerance’ to ’60s Radicals“, Campus Reform, March 14, 2018
Matthew J. Peterson, “Total Political War“, American Greatness, March 23, 2018
Joel Kotkin, “Is This the End for the Neoliberal World Order?“, The Orange County Register, March 24, 2018
William A. Nitze, “The Tech Giants Must Be Stopped“, The American Conservative, April 16, 2018

“Capitalism” Is a Dirty Word

Posted on December 27, 2017 by Loquitur Veritatem

Dyspepsia Generation points to a piece at reason.com, which explains that capitalism is a Marxist coinage. In fact, capitalism

is what the Dutch call a geuzennaam—a word assigned by one’s sneering enemies, such as Quaker or Tory or Whig, but later adopted proudly by the victims themselves.

I have long viewed it that way. Capitalism conjures the greedy, coupon-clipping, fat-cat of Monopoly:

Thus did a board-game that vaulted to popularity during the Great Depression signify the identification of capitalism with another “bad thing”: monopoly. And, more recently, capitalism has been conjoined with yet another “bad thing”: income inequality.

In fact, capitalism

is a misnomer for the system of free markets that could deliver abundant prosperity and happiness, were markets left free. Free does not mean unfettered; competition for the favor of consumers exerts strong discipline on markets. And laws against theft, deception, and fraud would serve amply to keep markets honest, the worrying classes to the contrary notwithstanding.

What the defenders of capitalism are defending — or should be — is voluntary, market-based exchange. It doesn’t roll off the tongue, but that’s no excuse for continuing to use a Marxist smear-word for the best of all possible economic systems.

The Wages of Simplistic Economics

Posted on September 17, 2016 by Loquitur Veritatem

If this Wikipedia article accurately reflects what passes for microeconomics these days, the field hasn’t advanced since I took my first micro course almost 60 years ago. And my first micro course was based on Alfred Marshall’s Principles of Economics, first published in 1890.

What’s wrong with micro as it’s taught today, and as it has been taught for the better part of 126 years? It’s not the principles themselves, which are eminently sensible and empirically valid: Supply curves slope upward, demand curves slope downward, competition yields lower prices, etc. What’s wrong is the heavy reliance on two-dimensional graphical representations of the key variables and their interactions; for example, how utility functions (which are gross abstractions) generate demand curves, and how cost functions generate supply curves.

The cautionary words of Marshall and his many successors about the transitory nature of such variables is no match for the vivid, and static, images imprinted in the memories of the millions of students who took introductory microeconomics as undergraduates. Most of them took no additional courses in micro, and probably just an introductory course in macroeconomics — equally misleading.

Micro, as it is taught now, seems to purvey the same fallacy as it did when Marshall’s text was au courant. The fallacy, which is embedded in the easy-to-understand-and remember graphs of supply and demand under various competitive conditions, is the apparent rigidity of those conditions. Professional economists (or some of them, at least) understand that economic conditions are fluid, especially in the absence of government regulation. But the typical student will remember the graph that depicts the dire results of a monopolistic market and take it as a writ for government intervention; for example:

Power that controls the economy should be in the hands of elected representatives of the people, not in the hands of an industrial oligarchy.

William O. Douglas
(dissent in U.S. v. Columbia Steel Co.)

Quite the opposite is true, as I argue at length in this post. Douglas, unfortunately, served on the Supreme Court from 1939 to 1975. He majored in English and economics, and presumably had more than one course in economics. But he was an undergraduate in the waning days of the anti-business, pro-regulation Progressive Era. So he probably never got past the simplistic idea of “monopoly bad, trust-busting good.”

If only the Supreme Court (and government generally) had been blessed with men like Maxwell Anderson, who wrote this:

When a government takes over a people’s economic life, it becomes absolute, and when it has become absolute, it destroys the arts, the minds, the liberties, and the meaning of the people it governs. It is not an accident that Germany, the first paternalistic state of modern Europe, was seized by an uncontrollable dictator who brought on the second world war; not an accident that Russia, adopting a centrally administered economy for humanitarian reasons, has arrived at a tyranny bloodier and more absolute than that of the Czars. And if England does not turn back soon, she will go this same way. Men who are fed by their government will soon be driven down to the status of slaves or cattle.

“The Guaranteed Life” (preface to
Knickerbocker Holiday, 1938, revised 1950)

And it’s happening here, too.

Monopoly: Private Is Better than Public

Posted on May 28, 2009 by Loquitur Veritatem

In this discursive post, I use the economic concept of perfect competition as a starting point from which to defend monopoly and to expose the folly and futility of governmental intervention in markets.

PERFECT COMPETITION AS A BOGUS STANDARD

I learned, in the standard microeconomics of my college days, that perfect competition is preferred to these three alternatives:

imperfect competition, where there is some degree of product differentiation (real or perceived)

oligopoly, where a particular product or service is sold by only a few firms (“product or service” is hereafter called “good,” in keeping with economic jargon)

monopoly, where there is only one seller of a particular good.

The theoretical superiority of perfect competition rests on the belief that, compared with the alternatives, it yields the greatest output of goods and, therefore, the greatest degree of satisfaction to consumers; that is, perfect competition maximizes “social welfare.”

The standard analysis has many problems, the most fundamental of which is the observation selection effect. The observer, in this case, is the economist who views the world through the lenses of economic efficiency and “social welfare.”

The construct of economic efficiency involves gross generalizations about economic reality, which are based on ideal firms in an ideal world, not on the behavior of real firms in the messy world of reality. The construct, in other words, sets up an ideal world of perfect competition, divergences from which are judged less than optimal — as if unavoidable, real-world divergences are less valid than the perfections of an imaginary construct. (This is an instance of a Nirvana fallacy, “the logical error of comparing actual things with unrealistic, idealized alternatives.”)

Then there is “social welfare,” which perfect competition is purported to maximize. “Social welfare” is in fact a fictitious device whereby the person who invokes it assumes (implicitly if not explicitly) that the happiness of individuals can be summed, and that he knows just how to do it. The predictable result of “social arithmetic” is a call for some kind of governmental action that effectively redistributes income; for example:

Affirmative action, on balance, redistributes income from shareholders, consumers, and more-qualified workers to less-qualified workers.

Progressive taxation redistributes income from persons who earn a lot of money (the job-creators of the economy) to persons who earn less money. It also drives out high earners, to the detriment of the rest of us.

Trust-busting (which is of particular interest here) amounts to a redistribution of income from the owners of a oligopolistic or monopolistic firm to consumers.

“Social welfare,” in other words, is a phony excuse for playing God — a variant of the Nirvana fallacy. (For more, see this, this, and this.)

HOW GOVERNMENT INTERVENTION DOES MORE HARM THAN GOOD

Why is it not a good thing for government to act in ways that redistribute income from the owners of firms to consumers? There are several reasons, beginning with the artificiality of perfect competition (or something like it) as a model of how markets ought to be organized.

Then, there is the arrogance of a mindset that judges consumers to be more deserving that the owners of businesses — owners who staked a lot of money (and created jobs) on business ventures that might have gone sour (and often do). Is it possible that trust-busting discourages business (and job) formation? You can bet on it.

Related to that, it is necessary to remember that business owners are humans, too — 160 years of communist-populist-“progressive“-“liberal” rhetoric to the contrary notwithstanding. Business owners’ desire for profit is no less legitimate than consumers’ desire for low prices. Government is in the business of penalizing oligopolistic and monopolistic business owners not only because economists have set up a false standard (perfect competition or something like it), but also because the act of penalizing appeals to the envy of many voters and interest groups toward persons with legitimately high incomes. Trust-busting is neither logically nor morally admirable.

It is true that not all industries lend themselves to perfect competition or something like it, but it is neither necessary nor desirable to regulate firms in industries that are characterized by oligopoly and monopoly. (pace Paul Krugman). Oligopoly and monopoly are not iron-clad. Consumers have alternatives: If the price of X is “too high” they can (and will) buy more of Y and Z; if the price of X rises a lot, relative to the prices of Y and Z, the producer of X is likely to find himself with a direct competitor. In the alternative, more consumers will abandon X in favor of Y and Z.

TWO EMOTION-LADEN CASES

What about situations in which there seem to be no ready substitutes for a particular good? Lurking behind this question are fears of private monopolies controlling the supplis of water and medical goods. The case of medical goods is more straightforward, so I will deal with it before considering the supply of water.

Medicine

The supply of medical goods already is artificially low because of government, not in spite of it. Who licenses doctors and grants the A.M.A. a near-monopoly on the accreditation of medical schools? Who licenses and regulates hospitals? Who approves drugs and licenses pharmacists? The list of questions could go on and on, but the answer is always the same: government.

The average person will react along these lines: “Government has to be involved in the provision of medical goods, otherwise we would be taking our lives in our hands every time we go to a doctor or a hospital, and every time we use a drug.” I respond as follows:

The main effect of government regulation of certain goods (including medical ones) is to raise the cost of those goods by imposing costs on their providers and effectively barring additional providers from setting up shop. This unseen cost means that Americans consumer fewer medical goods than they would if government weren’t imposing costs on providers and barring prospective providers. (There is an argument that Americans, on balance, consume more medical goods than necessary because of Medicare, Medicaid, and tax-exempt, employer-subsidized health insurance. But given those distortions, it is true that regulation raises costs and restricts entry.) Is it possible that the net effect of regulations is to make Americans worse off rather than better off? A good case can be made for that proposition. (See this, this, and this.) The case of medical goods exemplifies Bastiat’s axiom that

a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

Water: The Hardest Case

No Inherent Need for Government Intervention

If the debate about government’s role in medicine evokes much emotion and little reason, any discussion of privatizing the water supply is certain to elicit the rawest of emotions: fear. A typical reaction goes like this: “If government doesn’t provide our water, greedy speculators will corner the market and we’ll all be at their mercy.” It is hard to imagine such a reaction in the 1800s, when a large fraction of the population lived in rural areas, where most water came from privately owned wells or was taken, by private means, from rivers and lakes. Government doesn’t have to provide water, and if it couldn’t stop a you from drilling a well in your backyard (which it can, thanks to its “police power”) many urbanites and suburbanites might be able to supply their own water.

In any event, there is no inherent reason for government to supply water. The simple fact is that “municipal water works” has acquired the totemic status of “public schools.” Both institutions have become so embedded that private alternatives (on a large scale) were unthinkable, until (in the case of public schools) failure became so obvious that it could no longer be ignored. (That the dominant solution to the failure of public schools is to throw more money at them is neither a negation of their failure nor of the widespread perception of failure.)

Scenario 1: “Accidental” Private Monopoly

Given that there is no inherent reason for government to provide water, I begin the analysis of water monopolies with the following hypothetical:

We have with a small, settled community of 25 homes, in which every home has a well (and has had one for generations). It is accepted by all members of the community that each homeowner is the owner of his well; that is, wells are not communal property. Further, every well provides an ample amount of water for such purposes as drinking, bathing, cooking, watering lawns and gardens, washing cars, etc.

Suddenly, because of some unforeseeable geological change, every well but one runs dry. And the owners of the 24 homes without functioning wells (the unlucky 24″) have no immediate or easy recourse to another source of water — a spring, stream, or lake — because there are none within a day’s drive of the community. The only convenient source of water is the 25th home (“lucky 25”), whose well seems to provide more than enough water for its owner — enough, in fact, to meet the drinking, bathing, and cooking needs of the “unlucky 24.”

Issues Arising from Scenario 1

How should the “unlucky 24” cope with the near-term problem of obtaining water for drinking, bathing, and cooking? Suppose that they have two practical options:

Appeal to “lucky 25” by offering him a price for water that would just cover the cost of providing it (electricity, pump repairs/replacements, etc.).

Buy water in large quantities from an out-of-area vendor — at a much higher price than they would offer “lucky 25.”

“Lucky 25,” the accidental water monopolist, has the following options:

Accept the offer made by the “unlucky 24.”

Make a counter-offer by setting a price that is somewhere between the offer made by the “unlucky 24” and the cost, to them, of buying water from an out-of-area vendor.

Refuse to sell water to the “unlucky 24,” for one of the following reasons: (1) It is his right to do so. (2) He doesn’t want to be in the water-selling business, with its attendant distractions. (3) He fears that drawing significantly greater amounts of water from his well will cause it to run dry.

(You should understand that this is a law-abiding community whose residents are respectful of property rights — unlike the typical government — so that the water monopolist doesn’t have to worry about defending his well and himself against a mob.)

I daresay that the average reader would expect “lucky 25” to accept the offer made by the “unlucky 24.” But why should the accidental water monopolist accept the offer? He might, out of compassion, help the “unlucky 24” while they make other arrangements. But his help would be given out of compassion, not obligation.

The Permissibility of “Good Luck”

Yes, the water monopolist may have been “lucky” with respect to water, but perhaps he has been “unlucky” in other respects. Why, if “luck” determines one’s obligations to others, shouldn’t the water monopolist’s neighbors compensate him for his episodes of “bad luck” — the dog that was hit by a car, the underground stream which provides him ample water but threatens to undermine the foundation of his house, an errant wife, incorrigible children, etc.? Must “good luck” be penalized or paid for, as an act of “social justice”?

The answer is “no.” Anthony de Jasay explains, in “Economic Theories of Social Justice: Risk, Value, and Externality“:

Stripped of rhetoric, an act of social justice (a) deliberately increases the relative share … of the worse-off in total income, and (b) in achieving (a) it redresses part or all of an injustice…. This implies that some people being worse off than others is an injustice and that it must be redressed. However, redress can only be effected at the expense of the better-off; but it is not evident that they have committed the injustice in the first place. Consequently, nor is it clear why the better-off should be under an obligation to redress it….

Since Nature never stops throwing good luck at some and bad luck at others, no sooner are [social] injustices redressed than some people are again better off than others. An economy of voluntary exchanges is inherently inegalitarian…. Striving for social justice, then, turns out to be a ceaseless combat against luck, a striving for the unattainable, sterilized economy that has built-in mechanisms…for offsetting the misdeeds of Nature.

Scenario 2: Deliberate Water Monopoly

Suppose, now, that our water monopolist came by his monopoly in an entirely different way — a way that (to most of us) seems to draw on entrepreneurship, not “luck.” Suppose that he (and he alone) drilled a well for the purpose of selling water to his neighbors, whom (he knows and they know) cannot (and never could) find water under their properties. What should the water monopolist charge his neighbors for water? Just as much as they are willing to pay, of course. Is there anything immoral in that? If there is, why is it not immoral for an auto dealer to sell you a car for just as much as you are willing to pay, even if you need that car in order to earn a living?

Why should the water monopolist (or car dealer or anyone else) be forced by a legalized mob (i.e., government) to sell his product for a prescribed price, when he is the person who took the financial risk of drilling a well, not knowing for certain that he would strike water, at what rate it would flow, how long it would flow at that rate, and whether another source of water might materialize because of unforeseeable geological or climatological changes?

The answer to the question is found in emotion, not reason. Emotionally, we hold water to be more precious than, say, automobiles. Yet, many persons consume a lot of water for what might be called non-essential reasons (e.g., watering lawns, washing cars, filling swimming pools), and many persons need cars in order to earn a living. Water, stripped of its emotional baggage, isn’t a sacred commodity; it is merely a commodity that has different prices in different places.

Which brings us to the essential question: Who should supply water?

Why a Government Monopoly Is Worse

Perhaps government should be in the business of telling everyone what kind of cars they can have (or not have). (Not far-fetched, admittedly.) Well, then, perhaps government should be in the business of telling us whom to marry, how many children to have, where to live, etc., etc., etc. If that’s an unappealing prospect, why step down the slippery slope toward it by allowing government to dictate the price of water, as it does by controlling most of the nation’s water supply through municipal and regional water authorities?

What can government do that entrepreneurs cannot? The answer is nothing, except to set prices for water that are unlikely to correspond to the prices that would be set by voluntary transactions between private sellers and their customers. Government monopolies prohibit entry where entry would be possible, for example, along large rivers and around large lakes.

Government monopolies cannot respond quickly, if at all, to changes in costs and variations in demand. The prices set by government monopolies must therefore result in the subsidization of some consumers who would be willing to pay more for their water by taxpayers and/or other consumers who are paying more than they would pay if there were private, competing suppliers of water.

What about the poor persons who, without subsidization, could not afford water for drinking, bathing, and cooking, unless they were to forgo other necessities (e.g., medical care)? So, the market for water should be monopolized by government and the price of water should be distorted for the sake of a relatively small fraction of the population? It would be better to rely on (a) private charity and (if you insist) (b) tax-funded vouchers for the purchase of water.

Scenario 3: Government vs. Private Pricing

Which leads to the next objection to the privatization of the water supply (which was mostly private for a long time in the United States). It goes like this: “Water monopolists would bleed their customers dry; they would conspire to control the supply of water and charge whatever the market will bear.”

To test those assertions, let us consider the extreme case in which the residents of a mountainous area have only one potential source of water (other than rain), which is a river that flows through the area. Suppose “greedy speculator” buys the land surround the river’s source and dams the river, at a place on his land. (I am ignoring, for purposes of this post, the state of the law regarding such a practice.) “Greedy speculator” then pays for the installation of water pipes to various of his customers, meters their use of water, and charges them (perhaps at different rates) in such a way as to maximize his profit.

If you have been following along, you will have realized that there’ is no difference between “greedy speculator” and government, where it declares a local monopoly on the supply of water. There is, of course, a degree of (misplaced) trust in government, that is, trust that will “do the right thing,” which means robbing Peter to pay Paul. That trust amounts to nothing more than wishful thinking about government and misconceptions about the benefits of private action, spurred by the prospects of profit.

In the case of water, for example, government may not build enough capacity (to the detriment of consumers), it may build too much capacity (at the expense of taxpayers), or it may fail to keep its system in good repair (to the detriment of consumers). Private, unregulated providers, in the more usual instances where some degree of competition is possible, can respond more quickly than government to rises in demand, are less likely than government to overbuild, and are more likely than government to keep their systems in good repair.

But the provision of water a natural monopoly, is it not? That question (with its the implied answer: “yes”) arises from the belief that there is no room in a market for more than one supplier where an extensive infrastructure must be duplicated (as in the case of water plants and supply pipes). There are market solutions to such seemingly insurmountable problems, although — in the cases of electricity, natural gas, and cable TV — their implementation generally has been botched by regulatory incompetence and intent.

How could there be competition in a market for water? Consider the extreme case of “greedy speculator” who buy the land from which a river rises, and dams the river. If he sets the price of water too high, three things could happen:

Some residents self-ration, reducing or eliminating the use of water for such things as watering lawns, washing cars, and filling swimming pools. (Remember, my example involves a “speculator” who is interested in making a reasonable return on a large investment, which requires that he set up shop in place that isn’t destitute.)

Some residents leave the area for places where their total cost of living, relative to income, is lower than it becomes after “greedy speculator” sets up shop.

Competition arrives in the form of a supplier who hauls water in large tank trucks and installs a water storage tank for each of the homes and businesses that subscribe to his service.

Lo and behold, “greedy speculator” forestalls competition, and perhaps some departures from the area, by setting his price “just high enough.” Is that fair?

Still No Role for Government

Well, ask yourself if it’s fair of government to keep a private individual from earning a profit by providing a product of value to consumers, or to restrict that profit in the “public interest.” Ask yourself if it is fair that such practices on the part of government lead to a general reduction in the willingness of entrepreneurs to establish and expand job- and growth-producing businesses of all kinds. (Remember “that which is not seen.”) Ask yourself if it is fair of government to circumvent the private sector and provide taxpayer-subsidized goods and services to the residents of an area, just because it lacks “good” supplies of water or electricity, or just because it is frequently and predictably devastated by fires, floods, hurricanes, or tornadoes. Ask yourself if it is fair of government to provide taxpayer-funded insurance against predictable natural disasters when private insurers won’t do so — with the result that the areas prone to natural disasters remain heavily inhabited, at taxpayers’ expense.

In other words, private action — however competitive or uncompetitive — alleviates a host of problems. Government action tends to exacerbate those problems, and to create unforeseen (and unseen) ones.

CONCLUSION

It is written nowhere (but in the imaginations of statists) that government owes us a green lawn, a residence on a flood plain, or anything else but protection from predators, foreign and domestic. As soon as government strays beyond its proper role, it begins to corrupt civil society and its essential mechanisms, which include free markets.

One of the ways in which government strays is to interfere in markets and to provide services that can be and should be provided through markets. Government — at the behest of politicians, bureaucrats, academicians, and meddlers-at-large — interferes in markets and sometimes becomes a provider on the pretext that certain markets (most of them, it seems) are insufficiently competitive or otherwise have “failed” because they fall short of measures of perfection devised by — you guessed it — politicians, bureaucrats, academicians, and meddlers-at-large.

Government intervention in markets exacts a very high price, in liberty and material goods. It strips us of the ability to do for ourselves what we think needs to be done — as opposed to what some politician, other meddler, or “aggrieved” group believes we ought to do or have done to us. It strips us — even the poorest among us — of the means to do for ourselves that which we need to do. It strips us — even the poorest among us — of the fruits of those labors which are permitted to us. The degree of theft is so vast as to be unimaginable, but unseen and therefore (mostly) unlamented.

The bottom line: Private monopolies are superior to public ones, and should not be persecuted or prosecuted. Government monopolies are for the benefit of politicians, bureaucrats, academicians, meddlers-at-large, and the the majority of citizens who have been conned into believing that government action is preferable to private action.

A Short Course in Economics

Posted on April 2, 2009 by Loquitur Veritatem

In which I begin with pithy statements of principles and work my way toward more complex (but brief) explorations of selected economic issues.

1. Self-interest drives us to do good things for others while striving to do well for ourselves.

2. Profit is good because it entices invention, innovation, and investments that yield new and better products and services.

3. Incentives matter: Just as self-interest and profit drive progress, taxation and regulation stifle it.

4. Only slaves and dupes can be exploited. (Wal-Mart employees are not exploited; they are not forced to work at Wal-Mart. Anti-Wal-Mart activists are exploited; they’re dupes of the anti-business Left.)

5. There is no free lunch, all costs (including taxes) must be covered by someone, somewhere, at some time.

6. The appearance of a free lunch (e.g., Social Security, tax-subsidized health insurance) leads individuals to make bad decisions (e.g., not saving enough for old age, overspending on health care).

7. Paternalism is for children: When adults aren’t allowed to make economic decisions for themselves they don’t learn from mistakes and can’t pass that learning on to their children.

8. All costs matter; one cannot make good economic decisions by focusing on one type of cost, such as the cost of energy.

9. The best way to deal with pollution and the “depletion” of natural resources is to assign property rights in resources now held in common. The owners of a resource have a vested interest (a) in caring for it so that it remains profitable, and (b) in raising its price as it becomes harder to obtain, thus encouraging the development of alternatives.

10. Discrimination is inevitable in a free society; to choose is to discriminate. In free and competitive markets — unfettered by Jim Crow, affirmative action, or other intrusions by the state — discrimination is most likely to be based on the value of one’s contributions.

11. Voluntary exchange is a win-win game for workers, consumers, and businesses. When exchange is distorted by taxation and constrained by regulation, the losers are workers (fewer jobs and lower wages) and consumers (higher prices and fewer choices).

12. Absent force or fraud, we earn what we deserve, and we deserve what we earn.

13. The economy isn’t a zero-sum game; for example:

Bill Gates is immensely wealthy because he took a risk to start a company that has created things that are of value to others. His creations (criticized as they may be) have led to increases in productivity. As a result, many people earn more than they would have otherwise earned; Microsoft has made profits; Microsoft’s share price rose considerably for a long time; Bill Gates became the wealthiest American (someone has to be). That’s win-win.

14. Externalities are everywhere.

Like the butterfly effect, everything we do affects everyone else. But with property rights those externalities (e.g., pollution) are compensated instead of being legislated against or fought over in courts. Relatedly . . .

15 . There is no such thing as a “public good.”

Public goods are thought to exist because certain services benefit “free riders” (persons who enjoy a service without paying for it). It is argued that, because of free riders, services like national defense be provided by government because it would be unprofitable for private firms to offer such services.

But that analysis overlooks the possibility that those who stand to gain the most from the production of a service such as defense may, in fact, value that service so highly that they would be willing to pay a price high enough to bring forth private suppliers, free riders notwithstanding. The free-rider problem isn’t really a problem unless the producer of a “public good” responds to requests for additional services from persons who don’t pay for those services. But private providers would not be obliged to respond to such requests.

Moreover, given the present arrangement of the tax burden, those who have the most to gain from defense and justice (classic examples of “public goods”) already support a lot of free riders and “cheap riders.” Given the value of defense and justice to the orderly operation of the economy, it is likely that affluent Americans and large corporations — if they weren’t already heavily taxed — would willingly form syndicates to provide defense and justice. Most of them, after all, are willing to buy private security services, despite the taxes they already pay.

I conclude that there is no “public good” case for the government provision of services. It may nevertheless be desirable to have a state monopoly on police and justice — but only on police and justice, and only because the alternatives are a private monopoly of force, on the one hand, or a clash of warlords, on the other hand. (See this post, for instance, which also links to related posts.)

You may ask: What about environmental protection? Isn’t it a public good that must be provided by government? No. Read this and this. Which leads me to “market failure.”

16. There is no such thing as “market failure.”

The concept of market failure is closely related to the notion of a public good. When the market “fails” to do or prevent something that someone thinks should be done or prevented, the “failure” is invoked as an excuse for government action.

Except where there is crime (which should be treated as crime), there is no such thing as market failure. Rather, there is only the failure of the market to provide what some persons think it should provide.

Those who invoke market failure are asserting that certain social and economic outcomes should be “fixed” (as in a “fixed” boxing match) to correct the “mistakes” and “oversights” of the market. Those who seek certain outcomes then use the political process to compel those outcomes, regardless of whether those outcomes are, on the whole, beneficial. The proponents of compulsion succeed (most of the time) because the benefits of government intervention are focused and therefore garner support from organized constituencies (i.e. interest groups and voting blocs), whereas the costs of government intervention are spread among taxpayers and/or buyers of government debt.

There are so many examples of so-called public goods that arise from putative market failures that I won’t essay anything like a comprehensive list. There are, of course, protective services and environmental “protection,” both of which I mentioned in No. 15. Then there is public education, Social Security, Medicare, Medicaid, Affirmative Action, among the myriad federal, State, and local programs that perversely make most people worse off, including their intended beneficiaries. Arnold Kling explains:

[T]he Welfare State makes losers out of people who want to get ahead through hard work, thrift, or education. Those are precisely the activities that produce economic growth and social wealth, and they are hit particularly hard by Welfare State redistribution.

The Welfare State certainly has well-organized constituencies. The winners, such as the AARP and the teachers’ unions, know who they are. The losers — the working poor, children stuck in low-quality school districts — have much less political clout. The Welfare State has friends in both parties, as evidenced by the move to add a prescription drug benefit to Medicare.

As the Baby Boomers age, longevity increases, and new medical technology is developed, the cost of the Welfare State is going to rise. Economists agree that in another generation the share of GDP required by the Welfare State will exceed the share of GDP of total tax revenues today. The outlook for the working poor and other Welfare State losers is decidedly grim.

17. Borders are irrelevant, except for defense.

It is not “bad” or un-American to “send jobs overseas” or to buy goods and services that happen to originate in other countries. In fact, it is good to do such things because it means that available resources can be more fully employed and put to their best uses. Opponents of outsourcing and those who decry trade deficits want less to be produced; that is, they want to shelter the jobs of some Americans at the expense of making many more Americans worse off through higher prices.

For example, when Indian computer geeks operate call centers for lower salaries than the going rate for American computer geeks, it makes both Indians and Americans better off. Few Americans are computer geeks, but many Americans are computer users who benefit when they pay less for geek services (or the products with which geek services are bundled). Those who want to save the jobs of American computer geeks assume that (a) American computer geeks “deserve” their jobs (but Indians don’t) and (b) American computer geeks “deserve” their jobs at the expense of American consumers.

See also this, and this, and this.

18. Government budget deficits aren’t bad for the reason you think they’re bad.

Government spending is mostly bad (see No. 15) because it results in the misallocation of resources (and it’s inherently inflationary). Government spending — whether it is financed by taxes or borrowing — takes resources from productive uses and applies them to mostly unproductive and counterproductive uses. Government budget deficits are bad in that they reflect that misallocation — though they reflect only a portion of it. Getting hysterical about the government’s budget deficit (and the resulting pile of government debt) is like getting hysterical about a hangnail on an arm that has been amputated.

There’s no particular reason the federal government can’t keep on making the pile of debt bigger — it has been doing so continuously since 1839. As long as there are willing lenders out there, the amount the amount of debt the government can accumulate is virtually unlimited, as long as government spending does not grow to the point that its counterproductive effects bring the economy to its knees.

For more, see this, this, this, and this.

19. Monopoly (absent force, fraud, or government franchise) beats regulation, every time.

Regulators live in a dream world. They believe that they can emulate — and even improve on — the outcomes that would be produced by competitive markets. And that’s precisely where regulation fails: Bureaucratic rules cannot be devised to respond to consumers’ preferences and technological opportunities in the same ways that markets respond to those things. The main purpose of regulation (as even most regulators would admit) is to impose preferred outcomes, regardless of the immense (but mostly hidden) cost of regulation.

There should be a place of honor in regulatory hell for those who pursue “monopolists,” even though the only true monopolies are run by governments or exist with the connivance of governments (think of courts and cable franchises, for example). The opponents of “monopoly” really believe that success is bad. Those who agitate for antitrust actions against successful companies — branding them “monopolistic” — are stuck in a zero-sum view of the economic universe (see No. 13), in which “winners” must be balanced by “losers.” Antitrusters forget (if they ever knew) that (1) successful companies become successful by satisfying consumers; (2) consumers wouldn’t buy the damned stuff if they didn’t think it was worth the price; (3) “immense” profits invite competition (direct and indirect), which benefits consumers; and (4) the kind of innovation and risk-taking that (sometimes) leads to wealth for a few also benefits the many by fueling economic growth.

What about those “immense” monopoly profits? They don’t just disappear into thin air. Monopoly profits (“rent” in economists’ jargon) have to go somewhere, and so they do: into consumption, investment (which fuels economic growth), and taxes (which should make liberals happy). It’s just a question of who gets the money.

But isn’t output restricted, thus making people generally worse off? That may be what you learned in Econ 101, but that’s based on a static model which assumes that there’s a choice between monopoly and competition. I must expand on some of the points I made in the original portion of this commandment:

Monopoly (except when it’s gained by force, fraud, or government license) usually is a transitory state of affairs resulting from invention, innovation, and/or entrepreneurial skill.

Transitory? Why? Because monopoly profits invite competition — if not directly, then from substitutes.

Transitory monopolies arise as part of economic growth. Therefore, such monopolies exist as a “bonus” alongside competitive markets, not as alternatives to them.

The prospect of monopoly profits entices more invention, innovation, and entrepreneurship, which fuels more economic growth.

20. Stay tuned to this blog.

Politics and Prosperity

“Government is a disease masquerading as its own cure.”

Tag Archives: monopoly

Why Is Capitalism Under Attack from the Right?

Putting in Some Good Words for Monopoly

Preemptive (Cold) Civil War, Without Delay

Preemptive (Cold) Civil War

“Capitalism” Is a Dirty Word

The Wages of Simplistic Economics

A Short Course in Economics

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