Sunday, December 13, 2009

Welfare statism - oligopolists' best friend

Welfare states increase social mobility and break deadlocked class structures. That's what we often hear. But is it true?

If this view is correct, then countries with a high degree of redistribution activity such as Sweden should by now have reached a status with very few signs of class structuring left. A good way to measure this is the Gini coefficient. Wikipedia informs us that "The Gini coefficient is a measure of statistical dispersion most prominently used as a measure of inequality of income distribution or inequality of wealth distribution." Wealth distribution is much more interesting than income distribution because it reflects more accurately the dispersion of economic power. To illustrate that, you can have an allegedly socialist paradise with everyone earning exactly the same wage, but a very tiny minority of oligopolists owning all the means of production. Is everyone equal in this society? Of course not. Gini-income wouldn't show that, Gini-wealth does.

It so happens that while Gini-income for Sweden is conspicuously low (meaning that wage differences are not that prominent), Gini-wealth lists Sweden in the top bracket, even surpassing countries like Brazil or Mexico (sorry that my sources on this stuff are in German, I couldn't find any accurate English ones, but you should be able to understand the important bits). Why could that be? We have to understand the incentive structure behind the welfare state. The welfare state basically tells its clients: you do not need to worry about tough times, I'll care for you. Just pay me. As a consequence, people tend to save less and spend more, hoping that all the money they already paid into the welfare state will eventually work like a savings accout, helping them in bad times. If a welfare state grows so big that any conceivable extra-expense is covered for everyone, there is little to no incentive left to save. In other words, the accumulation of capital comes to a halt for those who rely on the welfare state, that is poor and middle class individuals. Those who already own vast amounts of capital will eventually be the only wealthy ones left. Plus, since they do not have to worry about competition from poor and middle class capitalists, they can easily expand their wealth thanks to a welfare state-incentivized oligopoly of capital, making them the only incontestable economic power group.

This should also have an impact on the household savings rate of affected countries. And indeed, in the heyday of the Swedish welfare state, the 1980s, household savings rates actually turned negative, took a sharp turn upwards in the days of welfare reform in the mid 90s (when it became apparent that their model was unsustainable), but declined after that for it seemed that the welfare problem had been solved satisfactorily.

But does that matter at all? If the state provides for you, why do you need personal wealth? The thing is, somebody needs to create wealth before it can be distributed. If nobody but a select few have enough capital to start a venture, then not only your employment, but also your provision of "basic services" depends on the good will of a few capital oligopolists. That makes countries prone to blackmail - "either you allow me to pursue reckless business policies or I'll move out of country, taking one fifth of all jobs and the capital structure with me". With a more dispersed distribution of wealth, such claims are much less powerful since the macro-economic damage one can do tends to be comparatively small.

In conclusion, we might say that the welfare state, unwillingly perhaps, considerably widens the gap between "haves" and "have-nots" and increases social mobility only to the extent that you can now better compete with others for jobs offered by the remaining oligopolists - X, Y or the state. Globalization improves this situation to some extent because foreign capital investors can now compete with domestic big shots, but domestic big shots still have their "home advantages". The situation needs be cured from within, not without.

Monday, September 14, 2009

Credit Crunch?

Rough translation of this article.

Since the major governments of this planet have arrived at the conclusion that a reckless money-printing policy was the way to go for tackling the current economic downturn, unimaginable amounts of fiat currency have been produced and given out to increase bank solvency. Still, politicians and some among the economic aristocracy bemoan the perceived "restrictive" loan policies of these banks. They are bunkering the money and not giving it out into the economy. Thus, we are supposed to be experiencing a credit crunch.

A credit crunch is a risk-aversive mentality among credit institutions which prevents lending to supposedly creditworthy non-bank customers despite an existing demand. One has to wonder why a careful lending mentality would suddenly produce such criticism, given the fact that the recent financial crash was caused by a lack of foresight and care in lending. Cautious lending is a very social behavior, it protects the assets of depositors and secures the future existence of a bank.

Another worrisome undertone of the debate is the entitlement mentality regarding a loan - there is no "right to credit". Credit, derived from the latin "credere", "to believe", is not at all automatic. In a tribal society with a strong social network, lending on good faith may be an option since peer pressure and the threat of ostracism and expulsion from the community may be sufficient to secure payment. However, in modern mass societies, one needs more security (such as capital or company assets) than just a wholehearted promise. It is self-evident that creditors must act prudently when lending out to strangers, even more so since the position of creditors has been considerably weakened through all kinds of debtor-protection legislation.

Considering this, who but a creditor should be allowed to decide which criteria are important to calculate the creditworthiness of a potential debtor? Who should be entrusted with giving away other people's money to third parties by just assuming their collective solvency?

And of course, it's highly questionable whether there is ever "too little" credit. For an addicted gambler, there will always be too little credit. The statement that "there is too little credit" is a classic case of Hayekian pretense of knowledge.

We should also remind ourselves that only that which has been produced and saved before can be lent out later on. This conspicuous fact is somewhat absent in the public consciousness since our decade-long tolerance of an unrestricted fiat monetary system has created the impression that money from the printing press or digital numbers created through the fractional reserve process by banks themselves are actual capital, which, in reality, is the result of deferred consumption. So on second thought, the credit crunch is really a capital crunch which was caused, at least in the US, by people who were living above their means for years and now lack an understanding of the virtue of saving.

Politicians, tenured economists and talking heads criticize the new conservative lending attitude of banks as this is supposed to hinder the recovery of companies which suffer from a severe decline of demand. However, both Austrian economics and empirical evidence suggest that the panacea of increasing the monetary base and the volume of credit will at best initiate a new business cycle with a pre-programmed recession at its end or, at worst, lead to a scenario of which even a few mainstream economists and pundits are now warning - hyperinflation, Zimbabwe-style.

The fact that demand is decreasing has to do with the former artificial boom created by loads of fiat money. In a recession, we see nothing more than a necessary correction of the structure of production, a redimensioning of overcapacities, a market clearing and the elimination of companies which have wrongly assessed customer preferences. What are additional loans supposed to improve in this situation?

Finally, we should consider what another author of this fine magazine had to say about creditworthiness a few days ago. Humanity in the lending business is, according to this gentleman, "anti-social". He continues, "When there were still debtors' prisons, the little guy could be counted on to repay his loans - he was a safe debtor. He feared imprisonment and this made him a reliable caretaker of other people's money. Today, the progressive state is protecting debtors from such a fate, but at their loss, since lenders are not attracted to them anymore." Conclusion: "Legislators have damaged those who they claim to protect, and are thus anti-social to the highest degree". How true!

Thursday, September 10, 2009

The Archon Mentality In Europe

In some regards, Europe is much more anti-statist than the US. There's not as much flag-waving and nationalism, not as much military and police worship, not as much upheaval when it comes to elections. You will also find a left-wing culture that has some anarchistic extensions, but these are going into a completely different direction than the free market-type ideas which are stemming from many US anarchists.

To understand this, we need to look at history. In the late 18th century, the popular philosophy of the day was liberalism. It wasn't the ruling idea, but many of those who had been under a monarch's thumbs for centuries believed that with freedom, their lot would improve. In America, people believed in this so strongly that they successfully overthrew the ruling monarchy and an aristocratic republic with a liberal bent was established. US citizens, as long as they were not black, females, Indians or dirt poor, were now able to make use of the benefits of an emergent society based on private property - the liberal ideal. This was sufficient to make the US a steady haven for laissez-faire ideas, although the atrocities towards native Americans, slavery and a not-so-limited federal government, among other things, showed that these ideas were not necessarily implemented politically.

In France, people were so impressed by the American revolution and so appalled by what was going on at home that they, too, successfully overthrew the ruling monarchy and a brutal tyranny was established. Notwithstanding the fact that Robespierre's tyranny and Napoleon's ensuing empire had nothing to do with liberalism, continental monarchs and their sympathizers were so terrified by the example of France that they did everything necessary to prevent the spread of liberalism. After a while, though, they realized that without at least some economic liberalism they would soon be at the mercy of countries like Great Britain which had acquired considerable wealth by allowing their populations to self-organize the production of goods and services. The result was authoritarian capitalism: by trying to beat down any revolutionary sentiment or emergent order among the lower classes while at the same time letting production organize itself along private capital lines, European monarchs created the bleak, elitist, poverty-ridden societies which we today know from textbooks to be the result of "laissez-faire capitalism".

This discredited liberalism in Europe and gave rise to Marxism, a philosophy that correctly attributed the century-long misery of the working classes to the alliance between "property owners" (who were, in fact, state-sanctioned slave drivers) and the state which Marx considered to be a mere fictional superstructure created by burgeois society. According to Marx, the final goal of history would be the stateless society wherein everyone would be treated along the lines of "from each according to his ability, to each according to his need". "Stateless" meant, of course, that every idea associated with Marx' understanding of the state would vanish as well, including concepts such as property, religion or hierarchy. Since liberals continuously lost touch with the underprivileged classes, their arguments for property or merit-based hierarchies remained unheard. Marx' definition of anti-statism gained a firm grip among the working class of Europe.

Around the same time, Lysander Spooner espoused another form of anarchy in the United States, one that was founded on what he called "natural law" - the non-aggression principle. Spooner, being an American, understood that there was nothing inherently oppressive with private property. In fact, he argued that in a stateless society, nearly everyone would want to become a capitalist to receive their full return on productivity. In that sense, Spooner and Marx were pretty close in that they both rejected the idea of "wage slavery", however, Spooner, being an American businessman, argued with laws of human action whereas Marx, being a European philosopher, argued with supposed laws of history.

Consequentially, whereas "the state" had been the main enemy archon for American anti-statists early on, European anarchists considered it just a byproduct of other archons such as religion or property. That's why resistance against "the state" seems to be rather weak in Europe - free thinkers are busy fighting all kinds of archons and tend to see the state as a comparatively small danger, maybe even something to work with. This, plus those who firmly believe in the goodness of the state, make Europe look so in love with the state archon - though most differences to the American tradition boil down to "human nature" vs "nature of history".

On Regulation

Everybody has preferences. However, the preferences of two individuals seldom match completely. Nevertheless, in some areas of life, large groups of people share a very similar preference concerning a specific topic. All things equal, they would be happier if things were run this particular way.

That's the basis of regulation. A shared desire by a group of individuals to have things done a specific way, and to have means with which to control the compliance with and punish deviations from this process.

The benefits of regulation are apparent: without it, the quality of a product could not be assessed by the end customer. Regular shoppers in a supermarket have no way whatsoever to ensure that the products they buy have been manufactured in a healthy, worker-friendly, clean facility and that what's inside the box matches what is advertised on the ouside. That's why many customers demand regulation of these products.

When you hear regulation, you probably think of the state. Government needs to regulate market products so that an impartial and trustworthy judgement can occur. However, there are some serious issues with state regulation:

1) The state is a monopoly service. If you entrust the state with regulating your daily life, you are opening the door for abuse and misconduct. Think of it that way: those who are mandated to regulate the safety of your food are probably tenured bureaucrats. They have no competition because expensive government regulatory processes have made it impractical for a market competitor to emerge. Now, a cunning food capitalist knows that and decides to bribe these bureaucrats into looking the other way when his contaminated food hits the shore. The consequences for you may be severe health problems, the consequences for the bureaucrats, if any, may amount to an inquiry which does not lead to anything meaningful. All the while, the government agency responsible will continue to exist and live off your taxes. Market competitors may be prone to corruption as well, but in their case, a whole fortune is at stake - when a food regulator gives his okay to a food that is contaminated, there's no need for a lengthy trial to make him pay. His stock will tank, he will be facing class action lawsuits before he knows what's happening and his quality seal will be an embarassment, not a desired product anymore. In short, he may go bankrupt for just one mistake. Not only does that prevent corruption, but it's a much greater motivation for meticulous work than an oath to uphold public safety and the Constitution.

2) But Monopoly regulation is not only unsafe, it is also impractical. Let's assume that a 75% majority of people feels that cars are unsafe and should be regulated to have more safety features. In a democracy, chances are that a party will pick up this vibe and implement such a thing later on. Now, cars have many more safety features, but have also doubled in price as a consequence. Now, only 55% are still in favor of mandatory safety schemes. The renegade 20% can't afford a car anymore. Unfortunately, it would take some time to abolish this new regulation and the newly created state agency that monitors car regulation IF a major party were to support it, but right now, health care and various wars are on the popular agenda and so it might take a few decades to fix the problem. A free market regulatory agency could just award a special seal to expensive cars with lots of safety features so that worried customers have the option of either purchasing a very safe, but very expensive or a not-so-safe, but cheap vehicle. Different strokes for different folks.

3) Finally, monopoly regulation may have unintended consequences which make the situation worse for some people. Let's take working hour regulations as an example. Let's say the state legislates that one employee may only work 8 hours a day. That's great for employees, right? Well, Joe Sixpack happened to earn just enough to make ends meet when he was working 10 hours a day for the man. Now that he's only allowed to work 8 hours at his job, he won't make enough to make a living. So he has to get a second job. Unfortunately, he doesn't find anything that allows him to work 2 hours per day, the minimum would be 5 hours per day. So, thanks to our 8-hours-a-day limitation, Joe is now forced to work 13 hours a day, even though his preference at the current price for his labor would've been 10. This is somewhat related to my point about impracticality, but in this case, it's not about having an upside and a downside (for example, more safety, but higher cost), but about having downsides only. This, too, is possible with monopoly regulation.

But how would a free market regulate? According to demand. Whenever an enterpreneur senses that people would like to have certainty about specific aspects of a product, he is free to create a quality seal which advertises this specific quality. It is his job to promote this seal to create both customer recognition and company demand for it so that the extra-cost imposed on businesses by admitting a quality control will be considered worthwhile. It is likely that renowned companies with a reputation for good quality control will eventually extend their sphere of influence on the general market, but there's also a lot of potential for niche quality testers in market areas with comparatively small profit expectations. For more on the issue, I recommend the video to the right.

Free Market Defense and Protection

How would a free market defense system work? That's a question statists immediately come up with when faced with the proposal of abolishing the state. Here's some ideas on the matter, and on the matter of defense and protection only; investigation, arbitration and restitution are a different pair of shoes.

Before we start with anarchic defense, I must remark that it's somewhat intriguing how much statists cling to their model of protection. What does it even promise to accomplish? Police is not here to protect you from crime (even though this is commonly assumed), but to investigate crimes after they have occured. Sure, if police happen to come along while you're being victimized, then you're lucky. But how likely is that? There is this classic gun lobby scare story of a murderer standing in your bedroom and the police being "only minutes" away. Unfortunately, that's not a scare story, but the truth. Even worse, contemporary states tend to be hostile towards gun owners, thereby making it difficult or outright impossible to acquire effective tools of self-defense. What'cha gonna do when you're barred by law from defending yourself and police take their time to arrive at your destination in case of a crime? Getting raped, that's your only option. State defense equals getting raped not only in this sense. Since states are monopolists and claim a monopoly on defense, you can expect, just like with any other force-backed monopoly, the price of defense to rise while quality decreases. Worst of all, you won't be able to do anything about it. In other words, state defense as a system fails.

Now to free market defense. The bedrock of free market defense is yourself. Free markets are all about individuals taking responsibility, and this is what's expected of you as well. You are your last line of defense and you're well-advised to take heed of your personal safety first. Staying in good shape, maybe acquainting yourself with a martial art, being familiar with common defense tools and using your territory to your strategic advantage (especially important for people with large properties out in the country) is always the best choice to keep criminals at bay. Hans-Hermann Hoppe once made the point that free market insurance companies would most likely reward qualified gun owners with more attractive premiums. I would add that any accredited improvements of one's self-defense or danger prevention abilities would better your rates since a customer that can safely take care of most perils himself is every insurance broker's wet dream.

But of course, you're most likely not alone against the world. The details of your mid-level protection structure would, I guess, depend on where you live. Sovereign property holders in thinly populated areas (farmers, hermits, nature-lovers, you name it) would be best served with a farm patrol-style guarding system. Depending on how big the protected area is, this could either be organized along the lines of a volunteer fire department with a few farm boys driving their daddy's trucks around their friends' farms, equipped with some CB radios and looking for imminent danger, or, if it's a rather large area, with a commercial defense provider cruising in the air with one or more helicopters and some sort of mobile rapid deployment force on the ground in case of an emergency. Restrictive covenants would have a wide range of defense possibilites at their disposal, and that's one of the reasons why I think that RCs would be fiercely popular in the absence of the state. There's the classic "gated community" style protection mechanism with checkpoints at entry and exit stations, making sure that at least vehicle traffic in the area is unlikely to cause trouble. This can be complemented by the presence of a few friendly and smiling constables who take a look around the streets and help strangers find their way in and out of the community. Enormously timid folks could opt for a RC with cameras on every street corner, but I doubt this would be a common sight. I could name all the shadings and nuances to that, but you get the picture: RCs can cater to any kind of security demand and experiment with varying policies to try out which one enhances the well-being of its citizens the most.

Now, one may ask, where's the difference between that and a state? The difference is one of status: security personnel hired by RCs depend directly on the satisfaction of RC inhabitants. Angry, abusive police agencies would go bust in no time due to contract annulations by RC entrepreneurs, or else people would move out of the covenant / refrain from moving there in the first place and the covenant entrepreneur would be left holding the bag. Since suppliers of living environments are able to cater to nice demands as well, it is much more likely that liberty-oriented folks will also find their place of choice with no cameras, no checkpoints, no restrictions on personal habits and so on. This can be implemented much easier in a state of markets than in a state of states.

One last area to cover for mid-level protection is non-RC city areas. Generally, protection in a city will probably be much more individualized since no police force could ever credibly promise protection of such large numbers of people. Now, apartment buildings could opt for a doorman who regulates entry. Individual property owners would best be served with a fence or a gate and knowledge of personal protection techniques. In more suburban areas, mid-level protection would most likely be completely individualized, maybe combined with a neighborhood militia, depending on how good neighbors get along. If there is still a demand for on-call protection services similar to today's police, it will be mainly in these suburban and city areas, though I doubt it. In the absence of an ideologically regulating state, property owners will most likely pragmatically discriminate in favor of civilized behavior, thereby making concerns about inner-city safety a thing of the past. For the rare occasions when trouble does arise, arms-carrying citizens will be able to defend themselves or a fellow sovereign against a criminal. I believe that organized protection is much more useful in the country than in the city and that many security concerns of today's cities are caused by state regulation of transport, tenant choice and personal protection. Whatever the problem will be, market participants will be incentivized to figure it out.

But what happens in case of an invasion? That's top-level protection and private military contractors will most likely emerge to deal with it. I don't think they will look like today's military; their most important personnel will be engineers and pioneers, special forces-type units and negotiators. Engineers and pioneers will be used to study the area around a client's position before conflicts heat up to figure out strategically important positions and apt locations to install appropriate defense facilities in case of an emergency. Of course, this will be much easier if the client owns the land (for example, in case of a RC) than if contractors have to negotiate agreements with neighboring property owners, thereby increasing the premium for the individual customer due to these additional expenses. Anyhow, if a heavily armed group of villains does threaten to invade, engineers will be rapidly deployed to the scene of action to prepare all kinds of traps and gadgets to hinder their invasion's progress. At the same time, negotiators will be activated to seek out the leaders behind the invasion and talk about conditions of peace. To improve their bargaining position, the defense contractor will also send out special forces units to take out the most important parts of the invasion, namely vehicles and the command structure. Open combat will be actively avoided to reduce costs. Blood will primarily be shed among those who claim responsibility for the aggressive invasion (the command structure). If negotiators cannot come to an agreement with the invader that suits the preferences of a customer (or matches the conditions previously defined in the contract between customer and contractor), the situation will unfortunately turn into a Guerilla war. We do, however, know from recent history that an oppressing group that is not viewn as legitimate cannot sustainably occupy a certain territory, especially if its inhabitants were not brainwashed by a state into giving the means of protection out of their hands. This will most likely turn into a completely disaster for the invader and become a warning to all prospective aggressors to just beat it.

Keep in mind, these are just ideas how this problem could be solved that I came up with while eating Easter Eggs. How much more creative will a guy be whom you'll actually pay to figure stuff out?

Constitutions - Unreliable Allies

American state-libertarians really enjoy talking about the Constitution. The Constitution needs to be respected, they say, for it is the founding document of this country and the source of our liberty! Constitutions are seen by these people as a means to shackle the state and protect individual liberty. That's a batshit insane idea.

First of all, the source of one's liberty is not a constitution, but the fact that the dominant powers in one's territory have so far refrained from infringing upon it. It is successful defense (in whatever way) against the spread of the state or any oppressing groups, not "the Constitution" that enables you to live with more choices than a poor serf in North Korea. One might argue that since the Constitution gives a resemblance of legitimacy to the state and, in the case of the United States, has a strong libertarian bent, institutionalized violence needs to adhere to some extent to these principles. That may be temporarily true, but as soon as a state is given power to interpret your Constitution, it will gradually dismantle its original message and replace it with whatever is in fashion. Just look at the Second Amendment mess.

Essentially, constitutions are words printed on paper. They keep a state from becoming tyrannical as much as a written contract keeps one of the signatories from breaching it, even much less so if you consider that while contract signatories tend to be of somewhat equal legal status, the state is in any case above you, either financially or militarily or legally or according to public approval or, most likely, by all of those criteria. Words on paper mean nothing to men with guns, determined to enforce authority. Your "guaranteed rights" are a claim based on the notion that the state works just as it was intended or promised to work, as a guarantor of certain claims called "rights", but it has no answer as to what happens when the state abandons this role and becomes an aggressive exploiter instead. All it does is convey a false sense of security, a last resort justification along the lines of "If policemen with submachine guns ever break into my house, I'll still have the Constitution!" And please don't pretend that "it couldn't happen here" because Mr. Jefferson had some good ideas 250 years ago.

Even worse, constitutionalism has long abandoned its function as a limit to state power. Today's constitutions are full of entitlement mentality, guaranteeing everything to everyone and making sure that legally, no effort can ever change the founding principles of social democracy. Take a look at the German constitution's section of "unalterable, foundational rights". That's as liberty-oriented as a congregation of postmillenial bigots:

Article 2, (1):
Every person shall have the right to free development of his personality insofar as he does not violate the rights of others or offend against the constitutional order or the moral law.

Now, what is "the moral law"? Sounds like an ambiguous clause, doesn't it? Right there, in article 2 of your list of "guaranteed rights", it says that you cannot break "the moral law". Didn't I mention postmillenialism?

Article 3, (3):
No person shall be favoured or disfavoured because of sex, parentage, race, language, homeland and origin, faith, or religious or political opinions. No person shall be disfavoured because of disability.

That's your affirmative action paragraph right there. You thought AA was unconstitutional? Not in progressive Europe!

Article 5, (1):
Every person shall have the right freely to express and disseminate his opinions in speech, writing and pictures [...]
These rights shall find their limits in the provisions of general laws, in provisions for the protection of young persons, and in the right to personal honour.

Do I have to say anything more?

Article 7, (1):
The entire school system shall be under the supervision of the state.
The right to establish private schools shall be guaranteed. Private schools that serve as alternatives to state schools shall require the approval of the state and shall be subject to the laws of the Länder.

Yay, a completely state-run school system with no homeschooling options! What a beautiful "right" !

Article 14, (2):
Property entails obligations. Its use shall also serve the public good.

That sounds like straight out of an Ayn Rand novel.

Love your freedom more than your constitution, or else you're most likely bound to lose it.

Back on Track

Dear readers,

shamefully have I abandoned this blog for months and months. This was partly due to a lack of inspiration and partly due to my activity on YouTube where I have been uploading videos which concern themselves with the management and workings of an anarchic society, among other topics.

I hope to be able to resume my writing here from now on. First though, I will be posting transcripts of my videos to try to make up for the months of inactivity.

I apologize for any inconveniences.