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.

Thursday, March 19, 2009

On the cornerstones of civilization

A primitive man whose only objective in life is to collect enough berries to survive would most likely be considered uncivilized today. Developed societies prefer to describe themselves as "civilized". But where is that dividing line between a caveman collecting berries and a salesman selling them?

In short, it is time preference. Our berry collector has a very high time preference - everything he produces (by collecting berries) he immediately wants to consume (by eating them). By not eating all berries and instead trading some for, say, clothes, other foods or weapons, he could increase his health and security and further down the road he might even have the prospect of living in a hut instead of a cave. A man living in a hut is certainly more civilized than one who dwells in a cave. Of course, this only works if at least two people share a time preference below immediate consumption of all goods produced, that is, if at least two people have saved goods to trade them afterwards. Civilization is thus largely dependent on human cooperation; it is individuals interacting in their rational self-interest. It is a community phenomenon also known as "the free market".

Obviously, those who consume all they produce immediately cannot take part in this exchange community. As time passes, an increasing number of producers will recognize the benefits of lowering time preference to save and trade and the market web will expand, thereby enriching every participant. Those with exceptionally high time preferences will soon be a tiny minority, but even these people will benefit from others' capital accumulation, be it through a wealthy man's ability to donate to charity or through surplus production that is given out for free.

Given time, this market process will eventually lead to modern civilization. While ideas, resources and business opportunity all play a role in it, the most important and fundamental prerequisite is low time preference; the willingness of a sufficient number of people to sacrifice present consumption for the sake of future profits that enables others to develop and materialize their concepts and productive endeavors. Henry Ford's ideas on automobile production would've been as valid 3000 years ago as they are today; still, with high time preference being the prevalent attitude, no factory could be built or sustainably run due to a lack of credit (that is, deferred consumption) and also purchasing power.

Productive processes can be reversed and destroyed if time preferences shift upwards again. A famous example would be the Roman Empire where, in its end phase, drinking orgies and corruption on all levels of society were quite common since investing and producing had long become unprofitable due to adverse political circumstances. Sounds strangely familiar, doesn't it? The strong economic foundation of the Roman Empire can still be seen today in its resilient ruins that have endured 2000 years of destructive environmental influences. Still, the productive processes that kept the Empire alive eventually came to a halt. That's when the somewhat intellectually developed world ended and a long dark age set in.

Can this happen again today? Yes, most certainly. Ironically, the Romans suffered from similar problems that we experience today - depreciated currency, nepotism, a burdensome military budget etc - that ultimately raise time preference to unhealthy levels. The rationale has remained the same over the centuries: if production doesn't get me anywhere, I might as well get drunk.

That's how civilizations perish. And that's why we shouldn't fall for the same temptations that have wrecked so many of them before us - because, in my humble opinion, there's something to be said for Western civilization after all.

Wednesday, March 18, 2009

103 famous faces and no entrepreneurs?

I saw this post on LewRockwell today. It is about a picture with 103 famous persons on it.

One can easily spot the political leaders and demagogues in it. Every big name, from Hitler to Che Guevara, has been portrayed. You'll also find famous scientists such as Einstein or a couple of popular sportsmen and artists. What I didn't find, except for Bill Gates, was entrepreneurs.

This proves an interesting point. Entrepreneurs are the invisible Atlas of this world; if it weren't for their coordination of what, when, how and in which amount, there would be no such thing as an economy. Entrepreneurs come in manifold ways and fashions; some wear forks and overalls, others prefer plain clothes, others have fine suits and briefcases. They seldom step out of the shadows, they are coordinating their business from behind; you're unlikely to see them unless you enter a vintage mom-and-pop store. Still, the reason for all the oranges at the supermarket, all the great new software at the computer store and all the sophisticated mechanics in a simple household gadget is the coordinated exchange of information, goods and services by entrepreneurs on the global market.

In the last century and still today, pretentious politicians claim(ed) to be better able to coordinate this process than literally millions of entrepreneurs on the market. They fail(ed) miserably and thereby underscore(d) the importance of entrepreneurial activity for modern humanity.

Entrepreneurs have been demonized, denounced, driven out of business by state violence and expropriated. They are under constant scrutiny by tax authorities because of the wealth that is created on their behalf. Nobody sees them, yet without them, we'd still be cavemen.

And indeed, even though it was unimaginable amounts of combined entrepreneurial effort that made possible the manufacture, distribution and display of the picture of 103 faces, little to no attention is paid to their existence. Time to raise our hats to all the entrepreneurial spirits in the world and say thanks - keep up the good work, please.

Monday, March 16, 2009

Gun control reloaded

A Dilbert comic strip from 1989. Still rings true today.

Sunday, March 15, 2009

Sunday Best - Mar 15th 2009

1) All-time best: The Compound Interest Paradox by FSK
A brief explanation of why a central bank fiat monetary system is unsustainable.

2) Best news-related: Further Adventures in the Quantum Wrongness Field, Economic Crisis Edition by Glen Allport
Short and comprehensible overview of why the current political prescriptions for overcoming the recession will not work and, in fact, be a great burden for generations to come.

3) Best discussion: 100% Reserve Gold Standard Banking and Loans on the Mises Institute boards
Thoughts on how a non-fractional reserve banking system might work out.

Saturday, March 14, 2009

Nationalized car production

My contribution to the auto bailout debate.

Tuesday, March 10, 2009

Movers, shakers and producers

Have you ever stood inside of a crowded, busy town and just adored what an evolutionary market system and the simple laws of supply and demand, combined with human entrepreneurial spirits and abilities, can accomplish?

Just picture yourself on the same spot 30 years ago. Would you recognize your environment if you didn't know where you were beforehand? Probably not. So much has changed in so little time. Businesses that serve customers well have expanded or moved into larger buildings, thereby probably changing their appearance and resembling a newly risen star. Enterprises that didn't even satisfy niche demands anymore have quietly packed their bags and made room for more promising startups. Countless numbers of individuals move in different directions on the sidewalks, but still, their walk is smooth: they adapt their paths in their rational self-interest and benefit everyone else in the process.

Now go back 30 years again. Would you see many motorists? Depending on where you are, it may seem like a lot. But compare today: consider the sheer amount and luxury of the cars you see rolling in a straight line. Aerodynamic, dashing artworks that only seem to improve with every new model. And the variety: you'll see swift and compact mini-cars waiting next to a sturdy SUV before a red light. It seems like everyone is able to find a model that suits their needs nowadays.

Take a stroll down the retail strip. In Charles Dickens' "A Christmas Carol", we find a lovely description of the richness of goods that attempts to catch the attention of potential buyers in a busy city street in Christmas time:
There were great, round, pot-bellied baskets of chestnuts, shaped like the waistcoats of jolly old gentlemen, lolling at the doors, and tumbling out into the street in their apoplectic opulence. There were ruddy, brown-faced, broad-girthed Spanish Friars, and winking from their shelves in wanton slyness at the girls as they went by, and glanced demurely at the hung-up mistletoe. There were pears and apples, clustered high in blooming pyramids; there were bunches of grapes, made, in the shopkeepers” benevolence to dangle from conspicuous hooks, that people’s mouths might water gratis as they passed; there were piles of filberts, mossy and brown, recalling, in their fragrance, ancient walks among the woods, and pleasant shufflings ankle deep through withered leaves; there were Norfolk Biffins, squab and swarthy, setting off the yellow of the oranges and lemons, and, in the great compactness of their juicy persons, urgently entreating and beseeching to be carried home in paper bags and eaten after dinner. The very gold and silver fish, set forth among these choice fruits in a bowl, though members of a dull and stagnant-blooded race, appeared to know that there was something going on; and, to a fish, went gasping round and round their little world in slow and passionless excitement. [...]
That was miraculous in Dickens' times. Today, we're living in an even more elaborate Cockaigne: from every window, the finest clothes, the most delicious foods and the most sophisticated tools are literally begging to be bought. Your choices are overwhelming indeed.

Follow me to one last corner of the city. You see a gray, unattractive edifice which gives a saddening impression. In 30 years, next to nothing has changed on its exterior. It's a state building. It is not subject to the laws of supply and demand, and whatever is done in there seems to interest nobody except those who perform the actual work. Compared to the other parts of our town, this seems misplaced. It's like a sore thumb that is sticking out. You wonder, how is such a company going to survive? Then you remember, it's not a company. It's the state.

For one second, a thought crosses your mind that something might be inherently wrong with the nature of the state. But you reject it immediately. After all, somebody has to build the roads. Right?

Monday, March 9, 2009

What about the poor?

One argument commonly heard in defense of states is concern for the poor. Without socialized provision of security, justice and defense, how are the underprivileged going to cope with rich evildoers?

This assumes, of course, that they are better off in a statist environment. But are they really? For a layman, it is (on purpose) next to impossible to decrypt the legal code. Thus, if you intend to sue somebody, you'll most likely need to hire a lawyer. Lawyers enjoy the benefits of a state-enforced cartel. Only licensed lawyers may practice and accordingly, the price of a lawyer tends to be high due to a lack of competition. A rich villain has top niche lawyers at his disposal that are familiar with the loopholes of one particular legal area. That way, even if a poor plaintiff were able to afford a lawyer, in all likelihood he'd still be disadvantaged compared to a rich defendant.

But not only that. Suppose there is a, despite all these obstacles, a high likelihood that a rich defendant may be found guilty despite his efforts in court. He could then also lobby the legislative branch of government to change the law. Specific legislation that is not of popular interest tends to be discussed by just a few members of the legislative branch at all. That way, the cost of lobbying legislators is still manageable. It's much easier, though, if the regulation you'd like to see changed is subject to a non-elected agency's whim. The intransparency and general confusion within these organizations makes it easier to bribe the persons important to your cause since they are not subject to public scrutiny and the actions of their agencies tend to be largely ignored, even more so than what Congress is doing. A determined wealthy individual would have much more options at his disposal than a poor plaintiff, despite the poor man's "right to socialized justice".

Now the minarchists are going to step in and claim that while all this may be true, in a minimal state with a liberty-oriented constitution and no unaccountable agencies, such problems would not exist. Granted, if I had to choose between what we have now and a minarchist state, I'd most certainly go for the latter to seek justice.

Still, with the state being the monopoly supplier of justice, a bad incentive structure arises. On a free market, arbitrators would have to be very careful not to lose their reputation as non-partisan and fair judges or else they'd be out of customers in no time. State judges, even if they are not protected by some kind of tenure, do not have to worry about this. They would be more likely to accept third-party favors since they have no competitors to worry about and even if some rumors arose about them, it'd still be harder to throw them out of office than it would be to just switch arbitration agencies. Since laws are subject to a judge's interpretation, even a staunchly minarchist society could degenerate into petty tyranny eventually. Liberty on paper is not a guarantee for actual freedom, see the Bill of Rights.

Are there legitimate concerns over the provision of law and order for the underprivileged? Yes, one cannot deny that. Is the state an appropriate answer? No, most certainly not.

Sunday, March 8, 2009

Sunday Best - Mar 8th 2009

1) All-time best: The Idea of a Private Law Society by Hans-Hermann Hoppe
Professor Hoppe on how law can emerge without a state proclaiming it.

2) Best news-related: Rush to Judgment by Peter Schiff
'Austrian' investment giant Peter Schiff's take on Rush Limbaugh's recent comments regarding the Obama administration, the inappropriate Republican response and what to do.

3) Best discussion: Formal Debate on Manoralism on the Mises Institute boards
After countless skirmishes between so-called "left-libertarians" and "right-libertarians", two representatives of these groups try to settle the issue in a final debate: would people in a free society prefer entrepreneurially run enclaves or solid property ownership?

Monday, March 2, 2009

It's the conservatives again

Rush Limbaugh, renowned conservative radio talk show host, announces that he wants Obama to fail because
his mission is to restructure and reform this country so that capitalism and individual liberty are not its foundation.
Great, Rush, so you're with us on abolishing the Fed? You're for private money, no FDIC, no FTC, no wartime inflation to mess around with Arab nations? You're against big government, so why do you seem so enamored with wars, the "health of the state"? Speaking of individual liberty, you're also for drugs?

Conservatives need to adhere to the principles they like to talk about or change their language. Conflation of state-conservatism and libertarianism is not desirable.

Sunday, March 1, 2009

Minimum wage laws are counterproductive on YouTube

My second try. Hopefully, I've improved. Any criticism would be appreciated.

Sunday Best - Mar 1st 2009

1) All-time best: Detroit Iron by Karen De Coster
A touching summary of why American V8s are still the best cars in the world from a time when the not-so-glorious bailout of the Big Three seemed like a bizarre joke. If you're not in love with cars already, you probably will be after looking at the photo gallery ...

2) Best news-related: Return of the war party by Pat Buchanan
Should we go to war again? No, says Pat Buchanan, and so do I.

3) Best discussion: Disappointed Anarchists on the Mises Institute boards
What would a stateless society look like? Would we see a revival of conservatism or more counter-culture? GilesStratton has some provocative thoughts on that one.

Thursday, February 26, 2009

Don't talk about that!

A father tries to explain to his two young children that they will have to foot the bill for their daddy's generation's spending. Hearing this, the girl responds that their money belongs to them. The boy adds they don't have any money to spend at all.

These two objections show that even a kindergarten class is likely to have a better grasp on reality than our Dear Leader(s).

(hat tip to

Comic: the common good

Politicians never grow tired of promising to further the "common good" or the "general welfare" in case they are being elected. However, there is no such thing as a "common good". My good may not be your good, so what is our common good? Indeed, what is the common good of millions of individual actors with different hopes, plans and resources? "Common good" or "national interest" means the well-being of politically connected insiders.

There's no other way to sustainably improve your own situation than to do it yourself - by acting in your own rational self-interest.

(source: CartoonStock)

Darryl Worley and misguided patriotism

In the early days of the Iraq War, one song touched many Americans very deeply and was able to remain on Number One for several weeks. Outside the US, it has received little to no attention, but it's a very honest emotional testimony to the mix of patriotism, desperation, hatred and belligerence that caused so many US citizens to support a war that they would later recognize to be one giant mistake. We're talking, of course, about Darryl Worley's "Have You Forgotten?".

I hear people saying we don't need this war
But, I say there's some things worth fighting for
What about our freedom and this piece of ground
We didn't get to keep 'em by backing down
Applied to the Iraq War, one confuses a fight for freedom (which is necessarily a fight against aggression, but the Iraq War was, per definition, an act of aggression itself) and for the safety of one's common perimeter (Iraq was at no time a threat to the safety of the US, at least no such estimates have come to my attention) with an act of violence. Fighting for freedom doesn't entail bombing innocent civilians. No threat to American freedom originated from these unfortunate Iraqi people.

Additionally, a revolution against an oppressive monarch ("not backing down") is not quite the same as clusterbombing a foreign nation. Worley should've considered this possibility before cheering for war.

Some say this country's just out looking for a fight
Well, after 9/11 man I'd have to say that's right
A national trauma cured with the lives of peaceful, innocent civilians? That's sick.

I've been there with the soldiers
Who've gone away to war
And you can bet that they remember
Just what they're fighting for
The sad thing is, while many of these soldiers do believe they fight for freedom, they're (not quite falsely) seen as an occupying force by a good number of natives and are being used to justify all kinds of tyrannical measures at home in the meantime.

The entire Iraq War should have never begun. Too many lives have already been lost due to it. There's no point in pretending that it "must be won", we can't let any more individuals die to fulfill a never clearly defined objective. It must end now. Every delay will cause new hurt and tragedy.

Wednesday, February 25, 2009

Snake Oil Stimulus

Another good job by our fellow progressive comrades at ThePeoplesCube.

Are you insane?

According to some ivory tower prisoners at Harvard Law (sic) School, you could be if you share the opinions expressed on this blog.

As the Cato Institute reports, a conference will be held to analyze the "free market mindset", creating ample opportunity for leading "social scientists and legal scholars" to express their nicely worded aversion for the system of production and exchange that has probably enabled most of them to be in the lofty position they occupy today. Maybe we're just narcissistic egoists, out-of-control Randroids, maybe we lacked attention in our childhood and now we're megalomaniacs. Who knows?

In an age that treats compromise as a virtue, principled opposition to evil is easily categorized as an insanity. That shouldn't stop us from being stubborn and insisting on our rights to life, liberty and property, no matter how many "scholars" disagree.

(hat tip to Ars Libertatis)

Obama's economic agenda is fallacious

President Obama delivered his first speech to a joint session of Congress yesterday. By employing a lot of platitudes and unwittingly painting a dreadfully wrong picture of what his plans will achieve, he tried to win the hearts of the nation once again. Let's have a closer look at his visions:

Obama said it's time to act boldly not just to revive the economy, but "to build a new foundation for lasting prosperity."
The only sustainable foundation for lasting prosperity is capital accumulation. Saving. Deferred consumption. Obama's stimulus plan entails quite the opposite, deficit spending and inflation. That may be the foundation for a new economic bubble, but it's far from being a foundation for prosperity.

"While the cost of action will be great, I can assure you that the cost of inaction will be far greater," he said.
This view implies that only government can take (and therefore must take) action or an already bad situation is bound to get even worse. Obama apparently doesn't believe in the power of emergence and grassroots operations, but rather trusts his own wits instead of letting the combined abilities and ideas of millions of individuals work out a solution. Such a stance requires quite a lot of self-confidence - Hayek coined it "presumption of knowledge".

Obama said his administration already has identified $2 trillion in government spending cuts that can be made over the next decade.
A surprisingly positive remark. Let's hope that "can" is not just a euphemism for "should be, but won't".

Obama predicted that because of the recovery plan, the United States will double its supply of renewable energy in the next three years. [...] Obama also pledged a "historic commitment" to health care and said the recovery plan could lead to a cure for cancer. He also promised the "largest investment ever" in preventive care. [...]
I don't even know how to call this. His first claim about a doubling output at least sticks to classic central planners' rhetoric, but holding out the prospect of a "cure to cancer" is one step beyond that. How can you promise a scientific breakthrough as a politician? Does he really think that throwing money after a project is all it takes? Amazing.

"Slowly, but surely, confidence will return, and our economy will recover," he said, asking Congress to join him in "doing whatever proves necessary because we cannot consign our nation to an open-ended recession."
The unfortunate aspect is that he's trying to imitate or even surpass Roosevelt in his "stimulus spending", thereby dramatically increasing the likelihood of an "open-ended recession". As I said above, dreadfully wrong expectations.

Obama promised to reform the regulatory system to "ensure that a crisis of this magnitude never happens again."
By ignoring the origins of the crisis, the existence of a central banking system, two state-backed mortgage corporations and a number of laws prohibiting banks from discriminating against customers with a low degree of creditworthiness, and instead opting for the popular, but misguided view of an "out-of-control market system", Obama is bound to aggravate the crisis and to sow the seeds for a new economic bust.

"A surplus became an excuse to transfer wealth to the wealthy instead of an opportunity to invest in our future," Obama said.
This quote scares me. Obama seems to hold the view that giving money to the wealthy does not lead to any kind of investment. While it was certainly bad-mannered to grant tax cuts to the rich, but not to the poor, any new private sector money creates more prosperity and opportunity than wasteful and misdirected government spending. Is a tax cut some sort of "gift" to Obama? Do we need to stop giving gifts when times get tough and instead "save" money by giving it to government? The idea makes me shudder.

Even more disturbing is the response of his alleged political "opponents":
Louisiana Gov. Bobby Jindal, who delivered the Republican response to Obama, blasted the Democrats' stimulus plan, saying, "while some of the projects in the bill make sense, their legislation is larded with wasteful spending."
No principled opposition to stimulus packages. No defense of free markets or individual decision-making. No, just an admonishment for being "too wasteful". Another reminder that working within the two-party-system might be a giant waste of time if your goal is to promote liberty, though Governor Jindal found stronger words to express his support for a bottom-up grassroots society in his YouTube response. So we shouldn't judge too soon.

In conclusion, Obama's attitude resembles the confidence of a central planner when it comes to controlling the lives of millions of individuals. His distaste for private investment and his obsession with politically correct spending are frightening. The lack of a principled opposition should be clarion call for action to all friends of liberty.

Tuesday, February 24, 2009

A shining example of individual liberty

Being able to walk into a police station while openly carrying your personal defense tools. No hierarchy between policemen and customers: both are armed, both have their reasons. No embarassing questions, no paperwork, no panic, just respectful business between two equally free men.

As Heinlein said, "An armed society is a polite society". If you don't believe it, go and find out in New Hampshire.

(hat tip to Opponent)

Minimum wage laws are counterproductive

For several reasons:

1) A wage determines the value of work performed. This value cannot be changed by fiat because it depends on how much customers are willing to pay for it. If we assume that a certain type of labor only generates a profit of 4 dollars per hour, then an employer can only pay a wage of 4 dollars per hour at the maximum to avoid a loss. If the worker were in an entrepreneurial position, he couldn't charge more than 4 dollars per hour for his work either or else he wouldn't find willing customers. A law that prohibits him from earning less than 5 dollars per hour would not increase his income, but most likely cost his job.

2) There's no "positive upwards spiral" created by minimum wage laws. Some proponents argue that more revenue earned by underprivileged workers will cause more money to circulate in an economy and in the end, everyone is supposed to be better off. If that were possible, we shouldn't stop at 8 dollars per hour, but enact laws that allow everyone to earn a gazillion dollars per hour at the minimum. That may sound insane, but it's merely the logical conclusion of the "positive upwards spiral" argument.

In reality, a finite amount of money chases an equally finite amount of goods and services. Prices for these goods and services need to be set according to supply and demand or else calculational chaos (such as we've been witnessing in the Soviet Union) will ensue. A minimum wage of one million dollars would totally destroy the division of labor. A minimum wage of 8 dollars doesn't do as much damage, but has exactly the same effects on a smaller scale.

3) Empirical evidence indicating that minimum wages and increased employment correlate is negligible. Minimum wage laws are one factor in an economy that influences the demand for labor. If other factors outweigh the damage done by minimum wage laws, there can be increased employment despite of, not because of minimum wage laws. One should not confuse correlation with causation.

Thus, while minimum wage laws may, on first glance, seem like a good idea to protect unskilled workers from bad living conditions, in reality all they do is create barriers for the poor, disturb the division of labor and decrease overall wealth and opportunity.

Monday, February 23, 2009

How to treat a recession V

In previous recession articles, I referred to recessions as a result of "vast shifts in customer preference" that cause temporary economic inconveniences which are inevitable in a period of comparatively large transitions. While being correct in the most general terms, this is, of course, a bit misleading since it leaves out of the picture why exactly these preference shifts started occuring in the first place. It could be that people all of a sudden decided to change their preferences, but that's unlikely on such a scale. The real culprit, at least in this recent case, seems to be central banking and centrally managed interest rates.

Let's start from scratch. Our current crisis originated in the housing market. A lot of people were unable to repay their mortgages and had their homes foreclosed; house prices started dropping since an increasing number of foreclosed homes were now up for sale. This created another problem: a number of homeowners used their homes as a "source of revenue", they hoped on ever-increasing homes prices and maxed out their mortgages whenever the speculative price of their home had risen. Now that house prices started dropping, their securities started melting away and other expensive consumer goods that had been leased with the expectation of ever-increasing housing prices had to be returned, thus decreasing demand and prices in these industries as well. Ensuing layoffs in affected sectors of the economy soon started spreading and recessionary tendencies became visible.

In other words, a good amount of people had been living well above their means for quite some time. How did this happen? Why did these people get a mortgage in the first place if their solvency was that unstable?

On a free market, credit is a finite good. The availability of credit is expressed by interest rates. If little to no savings (the foundation for sound credit) exist, interest rates are high: that way, scarce credit is directed to very profitable endeavors only that are able to generate enough revenue to pay back the considerable interest. As savings become more abundant, more credit can be given out for less interest and less profitable enterprises can make use of this tool as well. The least profitable enterprise is consumption. Consumption generates no monetary profit per definition because funds are being consumed instead of being invested. Thus, credit-financed consumption by a few (basically, what the United States had been doing in the last few years) is only sustainable to some extent in a society with an enormous savings rate (in case of the United States, the thrifty lender was mainly China).

A central bank with centrally managed interest rates shuts off this market-based process of interest rate creation. Interest rates are set by fiat ("according to leading economists' market estimates"). Because central planners are unable to imitate the effectiveness of a real market, central banking also has a political objective, namely to transform the "is" condition of the market into an "ought to" condition of what politicians would like to see. Wanna "spur consumption"? Just lower interest rates! Needless to say, this creates a lot of problems down the road once political planning collides with reality. To pick up our example of United States consumption, years of low interest and low personal savings rates created a vast debt bubble that popped once one of the most debt-laden sectors of the economy, the housing market, had started to crumble - in other words, once it had become obvious that the amount of debt circulating was not backed by a sufficient amount of savings or productivity, that there simply was a lack of funds that could not be compensated by an increase in debt because there was way too much of it already.

Saving money constitutes deferred consumption. Think of money as bricks. It's your decision whether you want to use all your bricks right now to build houses for yourself or put them into a bank to gain interest and to allow others to build houses with them. If a brick bank promises to loan out more bricks than it can reasonably expect to get in due time, any constructions that have already begun based on brick loans from this particular bank will eventually come to a halt. If the brick money system itself is based on not lending out bricks according to how many bricks are there, but according to how many bricks should be there or how many bricks a wise, but economically ignorant wizard estimates to be there, then all houses that have been planned based on this system will face a lack of bricks rather soon.

And then, to finally make the point I wanted to get to, you'll see these miraculous "vast shifts in customer preference" that I'd been talking about all along. When people realize there ain't enough bricks, they'll change plans and opt for alternative solutions. This will necessarily interfere with the schemes of those who had been calculating with central bank brick numbers, but ultimately, either there are enough bricks or not. If not, there's no point in pretending anything else. It will only delay recovery.

Now, recessions are not always the fault of central banks, but these banks notably increase the likelihood of far-reaching malinvestments. They are most likely to be blamed for our most recent recession. Accordingly, I considered it worthwhile to point out that "vast shifts in customer preference" do not need to be the result of "free market animal spirits", but can also be caused by the actions of state institutions.

Comic: market regulation

Market regulations impose costs on businesses. Since most regulators have no experiences with the kind of business they are supposed to regulate, the results can be expected to be tedious and expensive while at the same time creating a legal minefield. Worse even, since the cost of compliance does not scale with business size, huge corporations gain big advantages over their smaller competitors. That's why big business is generally in favor of regulation; you'll find their lobbyists near most regulatory committees.

Regulations do not help "tame the market". They glue together the legs of small and swift competitors so that corporate giants can easily crush them.

(source: Cartoonstock)

Sunday, February 22, 2009

Sunday Best - Feb 22nd 2009

1) All-time best: Libertarian Anarchism: Responses to Ten Objections by Roderick T. Long
A classic of libertarian theory by one of its most famous academic proponents, Dr. Roderick T. Long.

2) Best news-related: Battling the Threat of Famine with One Hand Tied -- Thanks Again Greenpeace and FOE by Ronald Bailey
While crops worldwide are being infected with a dangerous rust, adaption to this new situation becomes increasingly difficult due to the political minefield of genetic engineering. Demonizing technology will hardly improve global living standards - and it's a play with fire (or, more appropriately, "a pending disaster in global agriculture") in this particular case.

3) Best debate: Most Libertarian Country on the Mises Institute boards
A discussion on the freest place on earth that turned into an argument over secular statism. Quite thought-provoking.

Saturday, February 21, 2009

Solutions to anthropogenic global warming: The Carbon Badge

We're coming across a number of quality seals in our everyday lives. Some commend the product for its superior quality, others for the company's worker-friendly atmosphere, others for the humane treatment of any animals involved in the production process. In an age of climate concern, companies could show their efforts to reduce greenhouse gas emissions by putting a special quality seal on their products that we will refer to as The Carbon Badge (TCB).

TCBs will be issued by separate companies which specialize in analyzing the carbon output of other businesses. To get permission to use the seal on their products, companies would have to subject themselves to the rigorous scrutiny of TCB employees who have been trained to look twice on an official carbon balance sheet before accepting it and who would be allowed to check any corner or record of the aspiring company for evidence of fraudulent carbon claims. After successfully verifying the carbon benevolence of a company, "TCB Inc." would contractually allow them to use their seal on any company-related product and probably promote willing companies on their website or in TCB-friendly magazines and papers. That way, climate-conscious customers could discriminate against companies who refuse to take action against climate change and support industrial efforts to cut back on greenhouse gases.

But what if, say, Big Oil sets up a TCB-issuance company to promote their products with a phony seal? Markets will figure out which seals to take seriously and which not. An oil company that sets up a rigged seal and puts it on its products would soon be discovered by environmental activists and pilloried in their publications. Any general news outlet that has a reputation of editorial independence to lose will likely cover the topic as well as soon as the details reach the general market. Another approach would be customer guidance booklets which promote trustworthy seals so that customers can specifically look for them. After some time, those seals with the best customer/market feedback would become general knowledge and people would be able to recognize brand names or specific signs on first glance.

How about companies which put a trustworthy TCB seal on their product without permission? That would constitute fraud. If a product is supposed to contain apple juice, but you smell root beer after opening it, you're free to sue the producer and inform customer information agencies. Entrepreneurs who chose to act like that would soon lose credibility, maybe even their good credit ratings (after all, a fraud lawsuit may result in a hefty amount of trial fees and smart-money obligations).

What if people just don't care enough about climate change to notice any carbon badges? In that scenario, we'd be even worse off with a state solution. Since a majority of voters wouldn't care about climate change and likely oppose any related political measure that burdens them with extra costs and toils, we can expect politicians to drop the issue. Worse even, they might fund scientists to disprove anthropogenic climate change theory, thereby decreasing the chances of concerned AGW activists to get the message through. If a sufficient number of people worry about AGW, we shouldn't settle for an unsatisfying, wasteful and slow state solution, but instead harness the power of the market to tackle the issue.

Friday, February 20, 2009

Comic: farm subsidies

Farm subsidies are supported by most factions of the mainstream political spectrum for one reason: nobody wants to be guilty of "letting family farms perish". Subsidies are supposed to level the playing field and guarantee a basic income for those who pursue this traditional and hard way of life.

However, getting your hands on a state subsidy is an arcane and complicated task. Those who barely make ends meet by plowing their fields and harvesting their crops don't have time to get into this shady business and lack funds to hire a lawyer or tax consultant to handle it for them. Thus, agricultural subsidies flow mostly to big producers who thereby gain another advantage over their smaller competitors. Big agribusiness has the means to effectively siphon off subsidies. Family farms don't; they just want to honestly grow crops.

Farm subsidies are not a blessing to the family farm. They're another nail in its coffin.

(source: The Public Choice Capitalist)

Thursday, February 19, 2009

We're all spendthrifts now

Who would've thought? Federal government spending has been increasing almost exponentially over the last few decades. However, sometimes a graph is necessary to show how bad things actually are:

Two details are especially intriguing:
1) In 1971, President Nixon went off the Bretton Woods system which was the last vestige of the former gold standard. In this system, foreign countries used the US dollar as a reserve currency while the dollar itself was bound to a a gold exchange rate. That way, there was a last, albeit weak obligation to fiscal sanity left which prevented governments (especially the US government) from printing money and spending madly. Unsurprisingly, once this had been abolished, spending went through the roof almost immediately.
2) The graph ends in 2003. Iraq War, bailout and stimulus package would've lengthened the axis of ordinates quite a bit.

(source: Political Class Dismissed)

Europe's in trouble, says Gary North

Normally, I would've put this article in my "Sunday Best" category. It sure deserves to be called "best news-related article". However, its implications are too important to wait for Sunday.

Gary North writes about a Daily Telegraph article which, before being edited, said that a secret EU report available to DT editors warned about the magnitude of toxic assets on the balance sheets of European banks. They may amount up to 16,3 trillion pounds which is about 18,4 trillion euros. Failure to bail out these lending institutions with a comparable sum may lead to bank failures and ensuing bank runs. A breakdown of major European banks would basically collapse the European economy which is just as dependent on credit as any other. Plus, if people lose their savings, there's nothing left to spend or invest.

Worse even, since the European community consists of countries with vastly different debt conditions and financial credibility, a uniform solution is highly unlikely to be found if such a great sum had to be scraped up. For example, while investors may still have a lot of trust left in Germany's stability, they may refuse to lend to Italy. But since both Germany and Italy are part of the Euro monetary union, Germans would have to tolerate massive inflation by the European Central Bank to make up for a lack of creditor confidence in Italy. How long will they be willing to take that?
In my view, the European public still has faith that the governments and the central banks will successfully intervene to restore commercial banks. But if the original article was correct, that 44% of bank balance sheets have disappeared, then the public is living in la-la land. The entire structure of Europe's capital markets is at risk. Or, I should say, what remains of the capital markets is at risk.
Reality is an unforgiving mistress. If the public refuses to acknowledge the severity of a problem, it will not disappear. It will come back in an even worse fashion. If European banks have lost nearly half of their balance sheet, I honestly don't know what's going to happen. It could be everything from an exceptionally long and severe depression to a complete breakdown of civilization, but in any case, you bet it won't be pretty.

The validity of the cited Daily Telegraph article has not been verified as of yet, but I wouldn't take that as a relief. Try to imagine what's going to happen when welfare checks stop coming in because governments are out of credit and a vast number of people lose their savings. You can't picture it? Neither can I.

Brace yourselves, we may be in for a rough ride.

Wednesday, February 18, 2009

The Frederal Reserve

Cute Kirby analogy to the nature of central banking. Another good job by confederalsocialist.

Sacred pieces of paper

In the 18th and 19th century, constitutionalism was a popular political philosophy. Annoyed by despotic acts of their monarchic rulers, people figured that written limitations on a king's power would stop him from abusing his position too much. Thus, instead of demanding the abolition of monarchic rule, the popular sentiment was that a constitution could be introduced to keep the balance between liberty and power.

Classical liberals and contemporary constitutionalists cling to this idea. Believing in the necessity of a state, they argue that a liberty-oriented constitution jealously guarded by a liberty-loving population can guarantee the sustainability of a minarchist state (sometimes denigratingly referred to as a "night watchman state") and enable liberty in a statist framework.

However, there are several major concerns worth considering. First, if people need to have a libertarian attitude to keep a constitution alive, we might as well not have one; for a libertarian people will demand sufficient restrictions on state action by itself, whereas a non-libertarian populace cannot be stopped by a piece of paper anyway. That's the main problem with a constitution; as George W. Bush so beautifully put it, a constitution is "just a goddamned piece of paper". It may be a revered piece of paper that everyone pretends to worship, but at the end of the day, it is subject to the political whims of a time, not the other way round. There is no magic involved here, only paper and ink.

Furthermore, constitutions tend to give legitimacy to bad actions. In the absence of a constitution, a king's taxation powers were considered a legal gray area. Even though nobody had signed a contract with the king, it was expected that he should fulfill his part of the protection racket arrangement - or else his claims for tax money would become null and void. With an active constitution mandating taxation powers to government, there is still no contract signed (except for an obscure 'social contract'), but states which do not fulfill their duty of protecting citizens can point to the constitution for continued tax claims - after all, if a constitution has no legitimacy, they say, you don't have any rights whatsoever. Either you pay according to the constitution or you lose your constitutional rights. Thereby, natural rights that predated the drafting of a constitution become mere legislation bound to your compliance with state violence.

And even then, it is by no means secure that these constitutional rights will forever be upheld. After all, a constitution is subject to interpretation by states and their courts. With incremental distortions or conflations of certain articles, their actual meaning can be easily eroded and transformed into a pro-state position. Consider, for example, the Second Amendment. It states quite clearly that every individual has a right to keep and bear arms. After decades of distortion and creative interpretation of punctuation and semantics, we are now on the brink of a Supreme Court judgment that defines this Amendment as granting arms rights to state militias only. That way, the original intent of the Amendment, another balance of power by allowing ordinary citizens to guard themselves against tyranny, has been destroyed completely.

Finally, who says that constitutions have to be libertarian? Some contemporary constitutions seem to have almost completely abandoned the idea of limiting state powers and instead function as a regulatory element that promises welfare and affirmative action to its subjects while already infringing upon real rights in the respective articles. You don't believe me? Check out the German Grundgesetz:
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.

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.

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.

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.

Article 14, (2):
Property entails obligations. Its use shall also serve the public good.
And so on. Americans tend to think of constitutions as limits to state power, and while that was indeed the original intent behind them, it's not necessarily the only purpose of a constitution anymore today.

In closing, we have to admit that pieces of paper do not effectively keep a state in check. Sometimes, they even aid it in growing. Libertarians should seek for more appropriate tools to preserve liberty.

Tuesday, February 17, 2009

Comic: the value of knowledge

Schools are respected institutions because people believe they teach valuable knowledge to our children. However, the value of knowledge is subjective. While schools do communicate a lot of information, it is questionable whether a student will find any use in knowing these at all. Quite often, students will pursue enjoyable activities they can put to direct use much more productively and successfully than what they are forced to do at school. Still, these private activities tend to be considered less important than random school knowledge. That's a bad incentive structure which may delay the accumulation of worthwhile knowledge far too long.

(source: xkcd)

Monday, February 16, 2009

Comic: capitalists and competition

It is a common belief that big business is the driving force behind free trade and free market ideology. Not too rarely, that's wrong. Large corporations tend to lobby for state regulation of the market and protectionist tariffs to secure their established position and keep their own profits high due to a lack of competitors. That's why free markets do not equal the enslavement of mankind by capitalists, but much rather liberate humanity from the shackles that some businessmen want to impose on it.

(source: Cartoonstock)

How to treat a recession IV

We often hear claims for tax cuts by free market advocates in times of a recession. Generally, they are right: cutting taxes allows people to control a greater share of their resources, thus making production according to public demand, not government fiat more profitable and thereby increasing the likelihood of an economy that actually satisfies people's demands.

But there's a catch: cutting taxes only works if government spending is cut by the same amount or more at the same time. Otherwise, it'll be merely make-believe: while you may have some more dollars in your wallet, your government will already be engaged in deficit spending or monetary inflation to keep up with the cost of burdensome state programs.

The current recession seems to be a prime example of this schizophrenic mentality: in order to reach a "compromise", supposed free marketeers and those who put their trust in government agree to cut taxes, but increase spending ("stimulate the economy") at the same time. That's like eating your cake and having it, too. You can only spend money once: either for private sector needs and wants or for state purposes. If both compete for a finite amount of goods and services, prices will go up and your tax cuts will essentially vanish.

Not only is this a very dishonest method of trying to buy as many political sympathies as possible, but it's more of the same "let our grandchildren pay" mentality. At some point in time, debt incurred by a state will have to be paid back: either by taxing every bit of surplus wealth out of those who are still producing, a sure-fire way to economic collapse. Or by madly inflating the currency, another quick road to economic turmoil through hyperinflation. Or by pleading with creditors to forgive debts which they will only do for a good amount of political favors - which means that the bosses you can still vote on will be subject to the decisions of another layer of creditor functionaries - so you'll be even more screwed.

In conclusion, be careful whose tax cut plan you support. Paying less is only reasonable if less is being spent as well. Otherwise, nothing fundamental changes about the unsustainable attitude of spending until the cows come home.

Sunday, February 15, 2009

Sunday Best - Feb 15th 2009

1) All-time best: Schelling Points by khydraa
An analysis of why the state is still seen as a moral and sound entity despite its obvious systematic and ethical flaws. Also contains some interesting historical evidence for the claims made. An enlightening read for anyone wondering why the state is so effective at, well, governing people.

2) Best news-related: National Healthcare FAIL: Japan by David Z
A sickening case of socialized medicine failing to help those who are really in need. It's just an empirical observation, of course, but proves the libertarian point that socialization of certain sectors of the economy does by no means guarantee that they will be available to you should you have to depend on them.

3) Best debate: Does free will exist? on the Anti-State boards
Maybe it's because I have been pondering on the issue myself for quite some time now, but I found these exchanges very helpful and instructive. One should not be so quick to accept and promote the idea of "free will", even if one is advocating freedom in general.

Saturday, February 14, 2009

Implications of the Myers-Briggs Type Indicator

I've come across a very interesting personality characterization method today. It is called the Myers-Briggs Type Indicator and attempts to categorize your personality according to four factors: social attitude (Extraversion / Intraversion), perceiving functions (Sensing / Intuition), judging functions (Thinking / Feeling) and lifestyle preferences (Judgment / Perception).

Social attitude describes the way you interact with others: either openly or shyly (very generally spoken, as will be the case for all other factors). Perceiving functions are the way you process information: either by trusting unfiltered, tangible data collected by your senses or by abstractly analyzing what happens around you. Judging functions delineate how you evaluate gathered information: either by comparing them to general concepts in your mind or by weighing them with situational environments and events. Lifestyle preferences characterize which set of abilities, perceiving or judging, you like to use and to show to others.

You can take a personality test based on this model here. To find out what your results could translate into in real-life, look here. Wikipedia has a section on the frequency of all 16 Myers-Briggs personality groups within the United States population.

I decided to give it a shot and my result was INTJ - Introverted Intuitive Thinking Judging. I found astonishing similarities between the type decription on and my own perception of myself:
The INTJ's interest in dealing with the world is to make decisions, express judgments, and put everything that they encounter into an understandable and rational system. Consequently, they are quick to express judgments. Often they have very evolved intuitions, and are convinced that they are right about things.

They dislike messiness and inefficiency, and anything that is muddled or unclear. They value clarity and efficiency, and will put enormous amounts of energy and time into consolidating their insights into structured patterns.

INTJs need to remember to express themselves sufficiently, so as to avoid difficulties with people misunderstandings. In the absence of properly developing their communication abilities, they may become abrupt and short with people, and isolationists.
Interestingly, I see a similar behavioral pattern on libertarian message boards quite a lot. The majority of users demand rigorous intellectual honesty in debates and get annoyed and angry fairly easily once a counterpart seems to be avoiding this duty. You'll encounter long-lasting debates on details of a philosophy in which users with adverse views will valiantly defend their own position over many pages, even if it's just a minor detail among details - logic and stringency are to be preserved. And of course, there'll be countless debates about semantics for the purpose of being right because one feels right. I expect this to be more generally the case among those with a contrarian point of view or a very specific research interest. I wouldn't be surprised if a good number of professed and philosophically sound libertarians scored somewhere around INTJ.

Another intriguing aspect are attitudes towards morality, duty and authority among the more common personality types (INTJ is the third rarest personality, according to Wikipedia). For example, take a look at ISFJ, the most widespread character type:
They value security and kindness, and respect traditions and laws. They tend to believe that existing systems are there because they work.

The ISFJ has a difficult time saying "no" when asked to do something, and may become over-burdened. In such cases, the ISFJ does not usually express their difficulties to others, because they intensely dislike conflict, and because they tend to place other people's needs over their own.

ISFJs need positive feedback from others. In the absence of positive feedback, or in the face of criticism, the ISFJ gets discouraged, and may even become depressed.
In other words, ISFJ types fit best into a highly regulating statist society. They have faith in existing institutions, they do not tend to question the good motive of those working within them, they will not complain too much about overbearing taxation or presumptuous legislation (they can't say no!) and they're unlikely to adopt unpopular (anti-state) views because they need positive feedback from others - who are probably going to be pro-state in a statist society. That doesn't mean this personality type is somehow "bad" - only that it can easily be abused in a statist environment when there's no consciousness for the potential of abuse among ISFJers.

The second most common personality type is ESFJ. ESFJers are closely related to ISFJ persons, they just tend to be a little bit more outspoken. See what's prevalent among them:
They need approval from others to feel good about themselves. They are hurt by indifference and don't understand unkindness. They are very giving people, who get a lot of their personal satisfaction from the happiness of others. They want to be appreciated for who they are, and what they give.
They may have a strong moral code, but it is defined by the community that they live in, rather than by any strongly felt internal values.

In such cases, the ESFJ most often genuinely believes in the integrity of their skewed value system. They have no internal understanding of values to set them straight. In weighing their values against our society, they find plenty of support for whatever moral transgression they wish to justify. This type of ESFJ is a dangerous person indeed.

ESFJs respect and believe in the laws and rules of authority, and believe that others should do so as well.
ESFJ types seem to be prone to all kinds of indoctrination. If a person holding a high public office tried to explain to me that printing money equals generating wealth, I'd most likely call shenanigans. ESFJ types might reconsider their own position instead of questioning the view of public authority. Given state power, they may also be more reckless in using it since they tend to lack a correction mechanism for bad ethical standards. Plus, they believe in existing institutions as well, making them wary of any revolutionary thought. Basically, they seem to be the more active counterpart to the ISFJ type.

Finally, let's examine ISTJ personalities, the third most common type of person:
They are "good citizens" who can be depended on to do the right thing for their families and communities.

ISTJs tend to believe in laws and traditions, and expect the same from others. They're not comfortable with breaking laws or going against the rules. If they are able to see a good reason for stepping outside of the established mode of doing things, the ISTJ will support that effort. However, ISTJs more often tend to believe that things should be done according to procedures and plans. If an ISTJ has not developed their Intuitive side sufficiently, they may become overly obsessed with structure, and insist on doing everything "by the book".
Another kind of person that can be horribly abused under the wrong kind of guidance. Again, I'd like to point out that there's no intrinsically "bad" or "weak" element in these personalities; however, understanding that about one third of the US population shares a common inclination towards manipulation by "society" might help us see through some of the mechanisms that exist around us and whose function we understand on a theoretical level, but can't comprehend practically. How is it that obvious contradictions in state theory are often ignored? Why do so many people seem to blindly follow authority? This might give us some hints.

It may also explain why libertarians had only limited success in communicating their ideas despite an unmatched theoretical framework. Many people just don't seem to be into abstract cloud-castles even if they appear superior to currently existing systems and institutions. Understanding the personality of our target group should help to adapt our strategies.

There's a lot more to it, but I'll leave it at that. However, I strongly encourage you to research this topic. It sure caught my attention once I got the fundamentals.