"No He Can't"

Anne Wortham, a self-described "individualist liberal who happens to be black," says she cannot join the celebration of the election of Barack Obama. To do so, she says:

"I would have to believe that "fairness" is equivalent of justice. I would have to believe that man who asks me to "go forward in a new spirit of service, in a new service of sacrifice" is speaking in my interest. I would have to accept the premise of a man that economic prosperity comes from the "bottom up," and who arrogantly believes that he can will it into existence by the use of government force. I would have to admire a man who thinks the standard of living of the masses can be improved by destroying the most productive and the generators of wealth."

Read the rest of "No He Can't" here.

The Mercurius Society

The Mercurius Society is a London-based group with goals very similar to the Bastiat Society.  Its web site describes the Mercurius Society as follows:

"The Society was launched in London in September 2007. Since its establishment, the Society has brought together young business leaders and entrepreneurs for topical discussions with high-profile guest speakers. Mercurius Societies have been formed in other cities in Europe. The Society seeks to link those in the private sector who share the concepts of limited government and individual liberty with their counterparts in think-tanks, politics, academia and the media. The mission of the Mercurius Society is to strengthen support for free enterprise; enlist business leaders into the free market community; and encourage them to take pride in their role as the creators of prosperity."

I've added a link to the Society under "Free Market Links."

A Stimulus We Can Believe In

Animal Spirits

What is the best way to improve the lives of the poor?

Give them a chance to make some money. But how?

Mary Anastasia O'Grady writes, "the evidence is piling up that neither government nor multilateral spending on education and infrastructure are key to development. To move out of poverty, countries instead need fast growth; and to get that they need to unleash the animal spirits of entrepreneurs."

Of course, the dilemma we face is that you can't plan animal spirits. You can't control them with a committee. You can't count on their methods or their results. No wonder governments prefer to stick with development plans that consist of conspicuous spending. It's too hard to claim political credit for something that happens out of sight, even if it works.

In other words, most of what is presented as economic development is really political development, and most of what is really economic development has nothing to do with politicians.

Caveat Emptor

Writing in Forbes, Kathy Kristof reveals "an unfolding education hoax on the middle class that's just as insidious, and nearly as sweeping, as the housing debacle. The ingredients are strikingly similar, too: Misguided easy-money policies that are encouraging the masses to go into debt; a self-serving establishment trading in half-truths that exaggerate the value of its product; plus a Wall Street money machine dabbling in outright fraud as it foists unaffordable debt on the most vulnerable marks."

The hoax? College.

Perhaps we should require every college to adopt a new motto: "Caveat emptor."

A Shot of Confidence

The Colbert ReportMon - Thurs 11:30pm / 10:30c

The Word - Sweet Smell of Success

Colbert at Christmas
Colbert Christmas DVD

Green Screen
Bill O'Reilly Interview

Murder, Music, and Shopping

The Economist links murder, music and shopping to the eternal human quest to "propel the genes of the successful into future generations."

An excerpt:

"Shopping, that most urgent and tiresome activity at this time of the year, may seem to have little to do with either music or murder, beyond the mindless jingles in every store that provoke a desire to dispose of the manager who chose the playlist. But it, too, helps propel the genes of the successful into future generations. As surely as the tasty morsel that the male robber-fly offers up to his chosen mate, the jewels, champagne and scent that a man showers on a woman speak of his prowess as well as her desires. The Jaguar in his driveway, meanwhile, serves to emphasise his status to other men. A Fiat would get him there as fast, but only to physical destinations, not sexual ones."

Wealth in America

Radley Balko points out a disturbing trend: the wealthiest counties in America are increasingly found around Washington, DC.

"America's wealthiest counties ring a city where the chief industry is government — and the entire region's only getting richer. That doesn't seem like a trend that bodes well for the health of a market-based economy."

Read more here.

Not the Stimulus We're Looking For

In another excellent video from the Center for Freedom and Prosperity, Dan Mitchell explains why government spending is not the stimulus we're looking for:

More Fact Than Fiction

Stephen Moore, writing in the Wall Street Journal, notes that Atlas Shrugged reads more like fact than fiction...

"Politicians invariably respond to crises -- that in most cases they themselves created -- by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism."

New Links to Shake the Status Quo

Shaking up the status quo is a risky business. Entrenched political interests -- read Democrats and Republicans -- have erected a complex set of tripwires and booby traps to discourage any political activity outside of their control.

Protected from the outside, rule number one on the inside is "Don't shake things up." Expecting those who benefit from the status quo to change things is like expecting North Korea to hold free elections.

I've added three new links for those who are willing to take a risk.

The first is to the South Carolina Policy Council. Its president, Ashley Landess, spoke at the January 2009 monthly meeting about the Council's efforts to make the case for increased state government transparency. The Policy Council is a 501(c)3 engaged in education and research.

You'll find the link to the Policy Council under "Free Market Links" down the left-hand side your screen.

You'll also find a new link for the South Carolina Club for Growth. The Club is a 501(c)4, which means it can engage directly in political campaigns. The Club promotes state candidates who can reliably carry the message of limited government.

The third link is under "Related Events." There you'll find a link to the BB&T Speaker Series at the Initiative for Public Choice and Market Process at the College of Charleston. The Initiative is bringing in Mike Munger, Chair of the Political Science Department at Duke University.

Enjoy!

TV Worth Watching

Mark your calendar!

The Fox Business Channel is featuring The Call of the Entrepreneur at the following times:

Saturday, January 10, from 5 p.m. to 6 p.m. EST

To find your local station visit the FOX channel finder. To find out more about the movie, discover related materials, and learn how to host your own screening, visit The Call of the Entrepreneur website.

Designer Goods

Business people can achieve fabulous success without ever thinking about the larger economic process at work. Indeed, that process is so large and so complex that no one can  completely understand it. The best we can do is work to understand a small part of it, and then trade that understanding to make a living.

Anti-capitalists argue that such bottom-up, piecemeal improvement is too slow. They believe that we can make the world a better place by designing society from the top down, according to a master plan of virtue, goodness, and harmony. Such sentiments sound virtuous. In reality, they make impossible demands on human nature and human knowledge.

First, social master plans require individuals to deny their most powerful motivation: self-interest. Asking people who can't stick to a diet to stick to a social master plan makes as much sense as asking them not to go to the bathroom.

Second, social master plans require somebody, somewhere to know everything that is going on, and to know what is going to happen next. Even Al Gore can't do that. 

Rather than spend precious time, energy and money trying to run perfect plans with perfect people equipped with perfect knowledge, shouldn't we spend that time, energy and money trying to get the best results out of imperfect people who actually know very little, who face an uncertain future, and who are motivated primarily by self-interest?

Dead, But Still Dangerous

Ariannna Huffington declares laissez-faire capitalism dead, but still dangerous:

She writes, "It's time to drive the final nail into the coffin of laissez-faire capitalism by treating it like the discredited ideology it inarguably is. If not, the Dr. Frankensteins of the right will surely try to revive the monster and send it marauding through our economy once again."

Ideas are easier to deal with when they are sorted with Manichean clarity. Unfortunately, such dualism obliterates important details. Laissez-faire capitalism does not call for the elimination of all rules, nor does deregulation automatically equal laissez-faire capitalism.

Conflating both laissez-faire and deregulation with gangster anarchy is intellectually irresponsible. Furthermore, it is politically dangerous. If we "drive the final nail into the coffin of laissez-faire," what is left? Severed from the Western tradition of natural rights and limited government, public policy would drift according to populist whims. Good news for ambitious demagogues like Juan Peron. Bad news for everyone else. That is hardly a reassuring vision.

Rather than declare laissez-faire dead or dangerous, we should recognize what is really happening: it is slowly choking on the 80,700 pages of the Federal Register, a daily publication.

Work Study

Charles Murray, writing in the New York Times, says the typical undergraduate degree is meaningless as a career starter.  He says we should discourage the B.A. in favor of professional certification, which would tie education directly to employable skills. Why demand students get a degree they neither need nor want, when most of them just want a job?

Read it here.

Not A Better World

January 1, 2009 is the 50th anniversary of the Cuban Revolution. You've heard of eco-tourism, but are you ready for Marxo-tourism?

This would be funny if it weren't so sad. Notice how little difference there is between political propaganda and a press release from the chamber of commerce.

"Celebrate five decades of resilience, progress, allegiance to peace and social equality with the people of Cuba

Witness the stellar achievements of the Revolution first hand

Saturday 27 December 2008 through Saturday 3 January 2009

Five days in Havana and three days in Trinidad for the best of island dance, music, culture, art, nature and history

Truly a once-in-a-lifetime experience – a moment in history for reflection, rejuvenation, enjoyment and new friendships

Today millions optimistically follow the course of the Cuban Revolution, which despite hardships resulting from sanctions and blockade, is as dynamic as ever. This tour is for those who believe a green, healthy, educated, people-first way of life is the hallmark of civilization. It is for people who think as Cubans do, and say: Yes, we can make a better world and have a good time doing so!"

Gerald Warner, writing in the Telegraph, has a less enthusiastic view of 50 years of revolution:

"During his "five decades of resilience, progress, allegiance to peace and social equality", Castro has executed 16,000 people and imprisoned more than 100,000 in labour camps. The Western media are greatly exercised about Guantanamo; but few have heard of Kilo 5.5, Pinar del Rio, Kilo 7, the Capitiolo (for children up to age 10) and the other camps that compose Castro's gulag. Two million Cubans have by now rejected the resilience and progress of Castro's revolution and more than 30,000 have died trying to escape."

The Drug Trade

In 1776, Adam Smith famously noted the human "propensity to truck, barter, and exchange one thing for another."

But why do humans trade at all?

Another way to ask the question is, what is the survival value of trade?

To put the answer in its simplest terms, trade must deliver what humans want, and deliver it more reliably and with less effort than violence, fraud, or self-sufficiency.

Ah, you may ask, but what do humans want? For most of the history of our species, the answer was simple: food and sex. Today, in a world that offers most people food and sex in abundance, surely human desires have grown more sophisticated.

Or have they?

The Washington Post reports that the CIA is trading Viagra for information about the movement of the Taliban in Afghanistan. Traditional inducements for information like weapons and cash aren't working as well as they used to.

One 60-year-old Afghan chieftain had extensive knowledge of the region but would not cooperate with the Americans. He changed his mind after a CIA operative gave him some Viagra. The next time the operative visited, the chieftain "came up to us beaming. He said, 'You are a great man.' And after that we could do whatever we wanted in his area."

The more things change...

Seven New Books for the New Year

Barron's Economics Editor Gene Epstein recommends seven economics-related books for the New Year, including the two volume edition of The Bastiat Collection.

Here's what Epstein says about Bastiat:

"Over the years, I have seen many references to the work of Frédéric Bastiat, a French economist who lived and wrote during the first half of the 19th century. (Caplan describes him in The Myth of the Rational Voter as "the original one-handed economist" -- a reference to the type of economic seer that Harry Truman vainly sought.)

This year, I finally read the two volumes of The Bastiat Collection (2007). The only depressing part about these funny and satirical essays that assault economic myths is that they all seem so current.

Nothing much seems to have changed in the more than century-and-a-half since they were published. Just read Bastiat's "Petition of the Manufacturers of Candles...and...Everything Connected with Lighting," (volume 1, pages 227-232), in which the French parliament is exhorted to protect the lighting industry from "the intolerable competition of a foreign rival" -- the sun."

Here is Gene Epstein discussing his selections:

Evolutionary Economics

"The economy is a product of human action, not of human design"

Michael Shermer, The Mind of the Market

Organizations and Markets

It is a sad truth that most academic writing about business is indecipherable, pointless, or openly hostile towards its subject. Business people wisely ignore it. Their time is better spent making money by serving the lives of their customers.

But there are exceptions. For that rare treasure, really useful academic musings about business and economics, I highly recommend spending some time at the blog Organizations and Markets. It's creators describe the blog as follows:

Organizations and Markets was created in April 2006 by Nicolai J. Foss and Peter G. Klein, professors with research interests spanning organizational economics, strategic management, entrepreneurship, innovation, the economics of institutions, and the history, philosophy, and sociology of science. Foss teaches management at the Copenhagen Business School and Klein teaches economics at the University of Missouri, giving the blog an international and interdisciplinary orientation.

Don't be turned off by the PhD-speak. That's just the necessary academic code that identifies them as serious members of their profession. For business people, the primary attraction of the authors is their scholarly appreciation for market forces and the role of the entrepreneur in society.

Consider Peter Klein's comments on the popularity of business guru books like Jim Collins' Good to Great. I read Collins' book, and went away with a nagging doubt. Klein not only puts that doubt into words, he backs it up with research:

I’m not a fan of “guru” books like "In Search of Excellence," "Built to Last," and "Good to Great," for reasons well documented by Phil Rosenzweig in his excellent "Halo Effect." These books suffer from ad hoc generalization, sampling on the dependent variable, and a host of related methodological and expository flaws. If Rosenszweig’s critique is startling, then two articles from the November 2008 Academy of Management Perspectives on Jim Collins’s" Good to Great" — perhaps the leading guru book of our time — are devastating.

Organizations and Markets is a valuable stop for the time-starved but intellectually curious business person who would like to spend a little time in the company of important and perhaps even profitable ideas.

All those in search of excellence should start there.

A Pirate's Life

Every business is the expression of the human will to survive.

Where there are no legal businesses, illegal ones will have to do. Consider the success of Somali pirates.

"While their countrymen face the threat of famine, pirates in northern Somalia are building houses, buying cell phones and SUVs, giving relatives hundreds of dollars and winning the attention of beautiful women, who seem to be flocking to the area from miles around."

Healthy societies make it possible for men to support themselves and their families without violating the rights of others. The best way to reduce crime is to make behaving well more rewarding than behaving badly. That happy state of affairs begins with legally enforceable property rights. Where there are no property rights, only the most violent will dare own property. Violence offers the only reward.

When behaving well equals starvation, it comes as no surprise that desperate humans are drawn to violence, especially when it pays so well.  As one Somali taxi driver said, "The pirates are the hottest men in town," he said. "Girls from all over Somalia moved here to marry pirates. But if the girl isn't cute, she's out of luck, because the pirates only go with beautiful girls."

Back in the USSR

Back in the USSR, General Secretary Brezhnev stood on a crowded reviewing stand in Red Square as the mighty Red Army paraded by.

"You see those men?" Brezhnev asked the official standing next to him, "those men are snipers. They can light a match at two hundred yards."

Next came the tanks. "You see those tanks? They can go 50 miles per hour and fire a shell two miles."

Next came the missiles. "You see those missiles? They can reach a target anywhere on the globe in fifteen minutes."

Finally came three men absent-mindedly walking, wearing thick glasses and bad suits. "Who are they?" the official asked.

"Oh, they are our finest economists. You have no idea how much damage they can do."

Adapted from The Age of Turbulence by Alan Greenspan

A Work of Science Fiction

In the January 2009 special issue of Scientific American, Steve Mirsky makes fun of Republican politicians who dared to criticized some taxpayer-supported scientific research:

"On October 24 vice presidential candidate Governor Sarah Palin took on what looked through her designer eyeglasses like silly pork-barrel spending by the U.S.: “Some of these pet projects, they really don’t make a whole lot of sense, and sometimes, these dollars, they go to projects having little or nothing to do with the public good. Things like fruit-fly research in Paris, France. I kid you not.” Never mind that fruit-fly research has brought us modern genetics and molecular biology. The particular earmark in question was some $211,000 to a laboratory in Montpelier, France, with long experience studying ways to protect olive trees from fruit flies. And the little pests are threatening California’s olive crop—with a retail value estimated in 2005 at $85 million. So this money might be looked at by anybody with business savvy as an investment."

The question Mr. Mirsky fails to answer is why an industry with a retail value of $85 million deserves a $211,000 transfer payment from taxpayers. The beneficiaries of such money often dress it up as an "investment." Anyone with business savy knows that such "investments" are, in reality, examples of the truth of Bastiat's observation: "The state is that great fiction through which everyone tries to live at the expense of everyone else."

That would make Mr. Mirsky's "Humorous Case of the Olive Trees and the Fruit Flies" a work of science fiction.

A More Statist World Economy

“We’re seeing a more statist world economy,” says Ken Rogoff, former chief economist at the International Monetary Fund and now a professor at Harvard University in Cambridge, Massachusetts. “That’s not good for growth in the longer run.”

It’s not good for stocks either, says Paola Sapienza, associate professor of finance at Northwestern University’s Kellogg School of Management. Slower economic growth means lower profits. Shares might also be hurt by investor uncertainty about the scope and timing of government intervention in the corporate sector.

“If the rules of the game are changing, people are reluctant to invest in the stock market,” Sapienza says.

From Bloomberg, "Saving Capitalism No Sure Thing as Statism Undermines Economy"

Do Something!

"The whole country is with him, just so he does something. If he burned down the Capitol, we would all cheer and say, well, we at least got a fire started anyhow."

Humorist Will Rogers, referring to President Roosevelt in 1933; quoted in "Great Myths of the Great Depression" by Lawrence W. Reed

A Confused Mess

Bill Sandberg, Associate Professor of Management at the Moore School of Business University of South Carolina, sent this email concerning my post "A Crime By Any Other Name."

"What a confused mess Professors Fisman and Khurana have offered in place of a reasoned critique. They attribute the corrupt, self-enriching deeds of some corporate executives to what they claim is business schools' emphasis on a selfish doctrine of shareholder wealth maximization. The professors assert that this pernicious doctrine drove out the b-schools' former teaching that management is a profession that bears fiduciary responsibilities. In the current climate of financial upheaval and widespread fear, the professors' arguments will find a receptive audience. That's unfortunate, because their reasoning is either sloppy or slippery, but it's a mess either way.

If business schools have taught a doctrine of maximizing shareholder wealth, the execs in the professors' crosshairs are poor practitioners of that doctrine. The professors accuse execs of plundering "organizational resources"--which means the assets belonging to shareholders. Some maximizers of shareholder wealth those execs are!

Ben Rast zeroed in on the professors' greater offense: while purporting to stand up for the organizations that have lost resources to the rapacious execs, the professors actually employ a sleight-of-hand to shift the focus to "society's resources". But those resources never belonged to society; they were the property of the corporation, and therefore belonged to its shareholders.

The fiduciary responsibilities inherent in the profession of management are essentially those of an agent. An agent is empowered to act in behalf of a principal but not against the principal's interests. The doctrine that managers are agents of shareholders does not diminish managers' fiduciary responsibilities, and the law certainly allows different degrees of risk-taking within the bounds of fiduciary responsibility, depending on the goals or needs of the person on whose behalf the fiduciary acts. A trustee has a fiduciary responsibility to the trust's beneficiaries, for example, and not to society at large. Depending on the terms of the trust, he or she may manage its assets aggressively or conservatively, and may take single or multiple objectives into consideration. To society the trustee owes compliance with the law but not the subordination of the trust's interests to the claimed interests of society. 

From the vantage point of a b-school that's far less exalted than Columbia or Harvard, I'd say the professors' argumentation falls short of professional standards."

Got Inflation?

No one can deny that Hollywood produces a steady stream of cinematic reinforcement for a particular point of view: corporations are bad;  government is good (unless it protects corporations); humans are destroying the planet; white men are either evil or buffoons; and wisdom is best spoken by women, children, and the oppressed. But Hollywood propaganda is nothing new. 

In 1933, Hollywood produced propaganda to sell the idea of inflation to the masses. Think of it as Keynesian Economics for Dummies.

Henry Hazlitt described Keynesian economics as “one of the great intellectual scandals of our age." 

Read more here.

A Crime by Any Other Name

In Forbes, Professors Fisman and Khurana criticize the view that managers are agents for shareholders. They say that managers are agents for society.

In other words, mangers don’t work for the owners, they work for society.

This is a startling metaphysical leap, little different from the claim that an individual’s will to live is secondary to the will of society. The purpose of any business is an individual concern. The consequences of business are a social concern. Society does have a role to play in dealing with some of those consequences; preventing violence, theft and fraud, for example.

But it is a mistake to use businesses as a means to dreamy social ends. So long as a business is peaceful, does not commit fraud, or violate the property rights of others, society has no right to insist on different social ends.

We all agree that a manager who enriches himself at the expense of the owner is guilty of an injustice. Such a thing is not "free market capitalism." It is more correctly described as theft. Calling it free market capitalism is a symptom of confused morality. Capitalism does not equal looting the shareholders. That is hardly the way to maximize shareholder value.

Why should a social program that enriches itself at the expense of the owners be viewed any differently? Such a program is not "stewardship." It is another form of theft. Social justice does not equal looting the shareholders, either.

In his great novel Crime and Punishment, Dostoevsky made a point the professors miss: a crime committed in the name of society is morally indistinguishable from a crime committed for individual gain.

Government Intervention

The difference between just and unjust government intervention is simple.

If your house catches fire and the fire department comes when called, puts out the fire, and then leaves, that's justice. If your house catches fire and the fire department comes when called, puts out the fire, and then claims ownership of your house, that's injustice.

There are times when even the most ardent believer in markets relies on government intervention; even times when it is his right to expect it.

Liberating Commerce

Via Econ Lib, one of the world's most unique dedicatory plaques, one that actually celebrates free trade:

Why Flatter is Better

We often hear about businesses with flat organizational charts, by which is meant the business has comparatively few layers of decision-making between its top management and its front line.

Flatter is better, according to most people. But why?

There are at least two reasons. First, flat organizations are less likely to distort or destroy vital information as it moves up, down, and throughout the organization. Better information means better decision making.

Second, individuals in flat organizations don't have as much incentive or opportunity to behave bureaucratically by seeking more power and pay at the expense of organizational goals. Reduced bureaucratic behavior increases the chances that individual and organizational goals will overlap to a useful degree.

Considering the advantages of flat organizations, it's remarkable that we ever tried anything else. Yet, the unsettling and unavoidable truth is that for most of human history, flat organizations were simply unthinkable, as unthinkable as a man without a king or king without a church. 

In a sense, you could say that all of human history is the messy and sometimes bloody process of flattening out our social organizational chart. Flatter is better in business because flatter is better in society. Societies with stronger horizontal social bonds -- i.e. more individual autonomy -- have proven better at interpreting dispersed information and at adapting to new situations than societies held together by predominantly vertical bonds. 

The unpleasant truth of business is also the unpleasant truth of history: power destroys more creativity than it rewards.

The Curious Task of Economics

"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."

Friedrich Hayek in The Fatal Conceit, quoted by Russ Roberts at Cafe Hayek.

Buy or Else

Via Tom Palmer...

The Anti-Capitalist Intellectual

A September article in the New York Sun describes the mission of the Clemson Institute for the Study of Capitalism, and also illustrates the primary problem: most of the intellectual elite in America are deeply opposed to capitalism.

"Capitalism is thoroughly immoral and has no moral foundation," said Kirkpatrick Sale, the director of the Middlebury Institute, a think tank that studies separatism and self-determination. "In fact, it celebrates all of what we know of as the seven deadly sins except for sloth."

"All fundamental human rights have material and institutional conditions," a professor of law and ethics at the University of Chicago, Martha Nussbaum, said. "There would be no such thing as private property, for example, without government protection of property from trespass and other damages. There would be no freedom of travel if government did not maintain the highways in a safe condition, enforce traffic regulations, and so forth."

She added, "Early capitalists thought parents should be free to use their children for labor; we now think that government must require all children to go to school, no matter what the parents want. The story of the 20th century has been the story of the gradual rejection of the idea of minimal government in favor of a capitalism that protects 'human capabilities,' meaning the ability of people to live a decent life and enjoy their rights on a basis of equality with others."

The Dreams of Unknown Men

All eyes are focused on Washington these days. That is just the way the folks in Washington like it. Washington is The Greatest Show on Earth, the World's Largest, Grandest, Best Amusement Institution. Barnum & Bailey has finally met its match.

But there is a far more important and impressive show happening somewhere else. You can find it wherever individuals labor to discover new and useful knowledge: in garages and office cubicles; in buses, trains and commuting cars; in living rooms and across kitchen tables; in easy chairs and taxi cabs. Here, in places like these, wealth is truly created, not just moved around. Here, in places like these, the economic life of the nation rises and falls. Here, millions of individuals satisfy their basic need for security and status through a process of mutually beneficial trading, independent of what happens in the circus tents of Congress

Our economic salvation does not lie in the glitter and pomp of Washington; it lies with the dreams of unknown men.

Tax Haven Myths vs Facts

Part Three of the Center for Freedom and Prosperity's series on tax havens...

The Moral Basis for Tax Havens

This is Part Two of the Center for Freedom and Prosperity's series on tax havens. 

As you listen to Dan Mitchell, keep in mind the words of Sen. Carl Levin (D-MI), “Tax havens are engaged in economic warfare against the United States and honest, hardworking American taxpayers."

Why Tax Havens are a Good Thing

I've added a new link to the Center for Freedom and Prosperity. Based in Alexandria, VA, the Center is a non-profit created to lobby lawmakers in favor of market liberalization. The top project at the Center is the Coalition for Tax Competition, which fights to preserve jurisdictional competition and taxpayer privacy. 

Here is part one of a three part series on why tax havens are a good thing, unless you're a grasping tax collector.

When Markets Need Help

Over at the Cato Daily Podcast, economist Russell Roberts explains why he is not an anarchist. Markets work, but they don't work perfectly. Sometimes, they need help from the public sector.

Listen to it here.

Education "Investments"

"I believe that not only should government not increase its spending on higher education, but also that the case for subsidizing it at all is very weak."

George Leef, in the featured article at the Library of Economics and Liberty

The Rules of the Game

Writing in the Washington Post, columnist George Will quotes Russell Roberts of George Mason University on the danger of New Deal-like attempts to straighten out a misbehaving economy:

"By acting without rhyme or reason, politicians have destroyed the rules of the game. There is no reason to invest, no reason to take risk, no reason to be prudent, no reason to look for buyers if your firm is failing. Everything is up in the air and as a result, the only prudent policy is to wait and see what the government will do next. The frenetic efforts of FDR had the same impact: Net investment was negative through much of the 1930s."

Read the rest of "Same Old New Deal" by George Will here.

Here you can read more from Russell Roberts on why the rules of the game are important.

The Role of Troublemakers in Society

We praise entrepreneurship at least as much as it used to be despised, and for the same reason.

The entrepreneur is an innovator, the discoverer of new and useful knowledge. Radical innovations destabilize groups, organizations, industries, and even whole societies. Innovation is the act of a rebel.

The difference between an entrepreneur and an enemy of the state can be a fine one. The great success of capitalism is that it institutionalizes innovation, which is another way of saying it decriminalizes entrepreneurship. Capitalism makes troublemakers legit.

When the social order outlaws innovation, the innovators become outlaws. Consider pirates, for example.

What's the Plan?

Amid all the discussion of what must be done to get the economy moving again, it may be helpful to remember Hayek's words in "The Use of Knowledge in Society":

"This is not a dispute about whether planning is to be done or not. It is a dispute as to whether planning is to be done centrally, by one authority for the whole economic system, or is to be divided among many individuals. Planning in the specific sense in which the term is used in contemporary controversy necessarily means central planning—direction of the whole economic system according to one unified plan. Competition, on the other hand, means decentralized planning by many separate persons. The halfway house between the two, about which many people talk but which few like when they see it, is the delegation of planning to organized industries, or, in other words, monopoly."

Michael Shermer, Bastiat, and the Economy

A Sustainable Development

On my way to a doctor's appointment, I searched inside my briefcase for something to read while I waited. I found an issue of one of my favorite magazines, Scientific American, dated October, 2008. 

Therein I read the barely month-old words of Jeffrey D. Sachs, director of the Earth Institute at Columbia University, BA summa cum laude from Harvard University, MA and PhD in economics also from Harvard. With a resume like that, only a fool would argue with Dr. Sachs. Lucky for me, my mother raised one.

Actually, my mother -- God rest her soul -- raised a polite skeptic who tolerates the pretensions of other people, especially when they are well-intentioned and harmless, but is ready to rise up in indignation at the kind of arrogance that presumes to speak ex cathedra . Here is what Dr. Sachs wrote in a column entitled "Coping With a Persistent Oil Crisis":

"...the fundamental factors of supply and demand will keep oil costly for years to come."

"The current energy crisis will most likely worsen before it gets better."

Here is what actually happened to energy prices almost immediately after Dr. Sachs' confident declarations, according to the Energy Information Administration, Harvard  summa cum laude notwithstanding:



At Harvard, do they still teach that humility is a virtue, or is pretension a sustainable development?

Extraordinary Events

"Extraordinary events do not always require extraordinary causes. Given enough time, they can happen by chance. Knowing this, [Leonard] Mlodinow says, “we can improve our skill at decision making and tame some of the biases that lead us to make poor judgments and poor choices ... and we can learn to judge decisions by the spectrum of potential outcomes they might have produced rather than by the particular result that actually occurred.” Embrace the random. Find the pattern. Know the difference."

From "A Random Walk Through Middle Land," by Michael Shermer, Scientific American, October 2008.

Another Urban Myth

Did deregulation cause the financial mess? "Yes," if you ask most people. "No," if you ask a small group of thoughtful commentators who are willing to look beyond the self-serving political spin of the angry legion that wants to crush the spirit of deregulation, once and for all.

Consider Jeff Jacoby in the Boston Globe...

"Like the alligators lurking in New York City sewers, Bush's massive regulatory rollback is mostly urban legend. Far from throwing out the rulebook, the administration has expanded it: Since Bush became president, the Federal Register - the government's annual compendium of proposed and finalized regulations - has run to more than 74,000 pages every year but one. During the Clinton years, by contrast, the Federal Register reached that length just once."

Read the rest here.

By the way, 74,000 pages is equivalent to 74 novels the length of Tolstoy's Anna Karenina. If you read ten pages every night, it would take you twenty years to read all 74,000 pages -- if nothing changes.

The New Deal Didn't Always Work

Professor Tyler Cowen of George Mason University discusses America's Great Depression and the New Deal. From the New York Times...

"In short, expansionary monetary policy and wartime orders from Europe, not the well-known policies of the New Deal, did the most to make the American economy climb out of the Depression. Our current downturn will end as well someday, and, as in the ’30s, the recovery will probably come for reasons that have little to do with most policy initiatives."

Read the rest here.

Debt Control

The Purpose of Business

What is the purpose of business?

That is a question with many answers. The answer often reveals more about an individual's political  point of view than the truth behind the human "propensity to truck, barter and trade."

Putting politics aside, it appears self-evident that trading is inherent in human nature. Trading is an evolved survival strategy that appears in all times and in all places, from ice age settlements to POW camps. Trading is the logical consequence of a world that is too complex for one person to know it all. Life is better in societies where individuals specialize in useful knowledge and trade among themselves, what economists call the division of labor.

However, to say that trade is important is not to say that all trade is good. There are two basic trading strategies. One strategy is based on cooperation and mutual satisfaction. The other strategy is based on deception.

In repeated trades over time, the strategy of deception produces lower and lower yields. Try it yourself, and you'll quickly discover the truth in the old adage, "Fool me once, shame on you. Fool me twice, shame on me." Deception eventually destroys trust. 

Over time, the most successful trading strategy is to cooperate with those who cooperate with you, and to punish or avoid those who deceive you, a strategy that is known as "tit for tat." This type of trading is a non-zero sum, that is a two-person game with two winners. It also has the advantage of a built in mechanism for dealing with cheaters. 

The social consequences of business are important, but they are derived from its primary purpose as a survival strategy. When individuals trade for mutual satisfaction, they spread the benefits of trading far beyond what they originally intended. This kind of trading  strengthens the network of trust in society, making it easier to trade again and again.

When individuals trade deceptively, the social consequences are exactly the opposite. Such individuals must be identified and punished quickly before they strip others of their property, destroy the network of trust, and begin dismantling the social order.

The purpose of business is an individual concern. The consequences of business are social concerns. 

No More Czars

Commentary from Will Wilkinson on the unfortunate habit of naming "czars."

"Remember America's can-do, point man in the war on drugs, the so-called "Drug Czar?" Well, if you like czars, you'll love President-elect Barack Obama. He's proposing a new "technology czar," he's considering a "climate czar," and he's even floated the idea of a "car czar."

In tough times like these, America does not need a dose of tragic Russian authoritarianism. America does not need more czars."

Listen to the rest here.

The Price of Everything

Order and abundance, with no one in charge...

Aristotle, Updated

In the 2002 hit movie, My Big Fat Greek Wedding, father of the bride Gus Portokalos says to his future non-Greek son-in-law, "When my people were writing philosophy, your people were still swinging in trees." 

Aristotle is one of the people Gus was bragging about. In the 4th century BC, Aristotle said that man is a rational animal. Reason is man's most reliable guide, and an essential tool for investigating the natural world. No wonder Aristotle has been called the father of modern science.

But modern economic science teaches us that human reason has its limits. The human mind is not a computer sorting through complex alternatives at the rate of billions per second. It simply does not have the time or the resources to analyze decisions in that kind of exhaustive detail. Somewhere along the way, the mind must decide that enough is enough. It must make a decision on the basis of a reasonable expectation, not an optimal solution. To quote a popular saying, "better a good plan than a perfect one." The human mind is not an optimizer. 

Back to the 4th century. Aristotle also said that humans are social animals. We live in groups, and we use the behavior of our group as a guide for our behavior. We call such behavioral guides "culture," and to some degree, culture exists outside the realm of reason. Why do American's shake hands and the Japanese bow? Because they do. Social norms develop organically and over long periods of time. They do not always conform to rational expectations.

In both of Aristotle's 4th century statements, he implies a third point: humans are animals. Modern science has validated Aristotle's conclusion in ways that would have startled but no doubt delighted him. We are more closely related to the animals than he ever could have imagined. We share many of the same organs, physiology, and we have the same genetic material, just arranged differently.

One of the primary goals of animal social behavior is social status. This is visibly true in the world of primates and human teenagers. Status is no less important in the world of adult humans, where it is earnestly but more subtly pursued. Everyone is sensitive to the charge of naked ambition.

In Aristotle's age, status came from an individual's high birth, education, and being Greek (some things never change, Gus). Wealth did not necessarily equal status. In fact, Aristotle's view of the money making business was that it was an unpleasant necessity best left to men of lower rank.

Aristotle's view was not unique. For most of history, making money was viewed as a low-status occupation, less worthy than politics, the military, and religious orders. Napoleon I would famously disparage the English nation by dismissing it as "a nation of shopkeepers."

Napoleon not withstanding, by the late 19th and early 20th centuries, especially in the United States, business fortunes finally brought a social status rivaling that of aristocrats, generals, and religious potentates. 

Today, creating wealth through business activity is the most widely accepted means of achieving higher social status. But it is not, by any means, the only one. A degree from an Ivy League school is really more about status than it is about getting a superior education. Driving a Prius is more about status than it is about environmental concerns. In fact, driving a Prius and driving a Maserati serve exactly the same social purpose. Both cars elevate the status of the driver within their chosen circles. 

In one survey, over half the buyers of a Prius said the main reason they bought the car was that "it makes a statement about me." Maserati owners buy their cars for the same reason. 

The Math of Markets

Markets are epiphenomena derived from individual acts of discovery and exchange. In the modern world, markets are described by quantitative expressions. We call these expressions prices.

Prices are also themselves drivers of human behavior. They play the roles of both cause and effect. This duality makes the math of markets very different from the math of the physical world.

In the physical world, math conveys predictability. In markets, math conveys no such thing. In fact, it creates the illusion of a certainty that we do not possess. The probabilities are different. Rocks don't decide where they will go or how fast they will get there. People do.

People often ask, when will prices stop going down? The answer is, when the underlying phenomenon, i.e. human behavior, makes that happen. Predicting the behavior of falling stones is easy. Predicting the behavior of falling markets is as difficult as predicting the next thought that will flicker across your mind.

Lifeline or New Way of Life?

When business spends more time lobbying in Washington for government money instead of trying to make its own money, it's hard to continue calling it business. Is the bailout a lifeline or a new way of life?

Businesses as diverse as plumbers and boat manufacturers are crowding the halls of Washington. The New York Time reports, "The biggest surprise was how quickly it went from ‘I don’t need this,’ to ‘How do I get in?’ ” said Michele A. Davis, the head of public affairs at the Treasury."

Tyler Cowen on Markets

Do free markets corrode moral character? Here is part of the response to that question from Tyler Cowen, Holbert C. Harris Professor of Economics and Director of the Mercatus Center at George Mason University. His latest book is Discover Your Inner Economist, and he blogs at www.marginalrevolution.com.

"Markets allow productive people to provide extraordinary service to generations of their fellow human beings: by inventing new drugs,developing labor-saving devices, or finding cheaper, more efficient ways to supply the world with food. !e chance to become wealthy is often an incentive for such creative types, and ego and ambition are also prime factors. But we should not confuse these motivations with bad character. Markets make it possible to harness our desire for wealth and personal distinction to our more altruistic impulses. They spark us to do good by doing well. And, of course, they create the means for people to donate their wealth and labor to a range of philanthropic causes."

Read the rest here.

Professor Cowen will be the Bastiat Society's December speaker on Wednesday, December 3, 2008.

Tacitus on Law and the State

Corruptissima in Republica Plurimae Leges

"The more corrupt the state, the more numerous the laws.""

Publius Gaius Cornelius Tacitus (ca. 56 – ca. 117) senator and historian of the Roman empire, Annales III, 27.

"We Blew It"

P. J. O'Rourke offers some post-election advice to his fellow conservatives:

"Let us bend over and kiss our ass goodbye. Our 28-year conservative opportunity to fix the moral and practical boundaries of government is gone--gone with the bear market and the Bear Stearns and the bear that's headed off to do you-know-what in the woods on our philosophy.

An entire generation has been born, grown up, and had families of its own since Ronald Reagan was elected. And where is the world we promised these children of the Conservative Age? Where is this land of freedom and responsibility, knowledge, opportunity, accomplishment, honor, truth, trust, and one boring hour each week spent in itchy clothes at church, synagogue, or mosque? It lies in ruins at our feet, as well it might, since we ourselves kicked the shining city upon a hill into dust and rubble. The progeny of the Reagan Revolution will live instead in the universe that revolves around Hyde Park."

Read the rest here.

Little Bits of Knowledge

In the late 19th and early 20th centuries, progressive intellectuals (a.k.a. socialists) looked on with envy as scientists enjoyed one stunning success after another in their attempts to explain the physical world. By borrowing the methods of the natural sciences, these intellectuals reasoned, they could invent a new kind of man, one liberated from the dead weight of tradition. They believed all of mankind's problems, from war to public health, could be solved by the intervention of modern science, recast as public policy.

Social scientists would correct social mistakes as certainly as their physical science brethren calculated atomic weights or described the laws that arrange the stars. Like elements in a chemical equation, citizens would live productive and meaningful lives according to a scientifically designed social order.

It did not work. Not only did it not work, but it lead to some of the most horrible crimes in history. Totalitarianism, eugenics, racism, nationalism, genocide, concentration camps, and gulags are all direct consequences of the attempt by progressives to substitute social calculations for traditions and individual choices.

Perhaps this is mankind's fate, to forever misapply the insights of one field of knowledge to another. Enthusiasm cannot overcome the limitations of infallibility. At best, we can hope to limit the size and scope of our mistakes, but we can never get rid of them altogether. They are our most reliable companions. They are part of our very nature.

But what is human nature? Human nature is tool for survival. It was built by a process of incremental discovery in a world of complex phenomena. Human nature is well-adapted to deal with small groups of individuals and little bits of information, but it is supremely confounded at trying to comprehend the sum and effect of all the knowledge in the system. Human nature struggles to conceive of the infinitely large and the very small. It is most comfortable in the middle-sized world of its own making: a world of predictable patterns, family, a few close friends, a couple hundred acquaintances, and a world where bits of knowledge are shared like food.

When people exchange knowledge because they are required to, we have an economy based on servitude. When that exchange occurs voluntarily, we have an economy based on cooperation. Either way, the exchange of little bits of knowledge is precisely what makes an economy. The more opportunity individuals have to specialize in a particular field of knowledge, the faster they can discover and exchange new knowledge with one another, and the faster the economy grows. Economic growth depends first on discovery, and discovery is an individual, not a collective act. It cannot be scripted, forced, or deliberately planned. It can, however, be encouraged.

The discovery and exchange of little bits of information results in yet another system far larger and more complex than any one person can comprehend, because that would mean that he already possessed all the little bits of knowledge owned by every actor in the system. Further, it would mean that he already knew how every other actor planned to use his little bit of knowledge, and how that use would affect every other exchange in the network, forever and ever. Humans do not possess such God-like knowledge. The 17th century French liberals had it right, "the world moves by itself."

Yet, our human nature still longs for a middle-sized world of understandable patterns. Consider something as simple as a football game. In the fall of every year, hundreds of thousands of football fans offer their predictions for "the game." Most of them are wrong. A few are right some of the time. None are right all the time.

The self-evident truth of football season this: we cannot consistently predict the outcome of even a simple game, a microcosm of human action where there are only twenty-two players on the field, and we have a wealth of information about each of them, and everyone knows the rules, and we have officials who enforce the rules. The outcome depends on events unseen, unanticipated, and unknowable.

If we cannot foresee the outcome of a simple game, what on earth leads us to believe that we can foresee the outcome of a world where there are 6.5 billion people discovering and exchanging bits of knowledge, hundreds if not thousands of different, shifting, sometimes conflicting rules, and no consistent enforcement?

Scientific socialism failed to deliver what it promised because it did not recognize the importance of individual knowledge in producing a larger social order far beyond anything one person intended. Socialism continues to succeed as a political faith because it appeals to that part of human nature that is awed and frightened by the vast phenomenon of human exchange that we call the economy. Socialism promises to reduce boundless life to a set of variables in a social equation, something one man can manage.

That is the enduring appeal of socialism. Like religious faith, it gives some structure to a mysterious world. Like religious faith, it uses a set of metaphors. Metaphors are useful, even necessary for human existence. But metaphors are not the same as physical laws, and people are not as predictable as physical constants. Like religious faith, it is all too easy to mistake metaphors for immutable truth.

Most BAs are BS

Scholar Charles Murray of the American Enterprise Institute argues that the most popular college degree, the BA, is overpriced and largely a waste of time. First, the BA is cast in an inflexible term of four years, regardless of how long it takes to acquire marketable proficiency in whatever is being taught. Second, the rewards of having a BA often have nothing to do with what was learned. Third, encouraging students to pursue a BA means large numbers of young people will spend valuable time and money trying to complete course work they may not have the ability to do. Finally, the BA system makes everyone who does not have that degree a second-class citizen, even though non-BA holders may make more money and accumulate more wealth over their lifetimes.

In short, Murray examines the question, "Is college worth it?" and answers "For most people, no." His alternative is a set of professional competency tests, like the CPA exam.

Read more here.

On a personal note, I tell my children there are only three skills you should possess as the result of an education, whether or not you possess a degree: the ability to think logically, the ability to express yourself clearly in writing and in speech, and the ability to perform math at a high level. All the rest you can learn as you need it.

Dirigisme and Helotism

Here are two bona fide but arcane English words that soon should be making a popular comeback, considering the political tilt of the times:

Dirigisme: (noun) economic planning and control by the state; also, state control of social matters.

Helotism: (noun) a system under which a nominally free social class or a religious, national, or racial minority is permanently oppressed and degraded.

There Must be A King Over Us

From over three thousand years ago, the voice of the prophet Samuel speaks, and reminds us of the danger of kings:

Samuel delivered the message of the LORD in full to those who were asking him for a king.

He told them: "The rights of the king who will rule you will be as follows: He will take your sons and assign them to his chariots and horses, and they will run before his chariot.

He will also appoint from among them his commanders of groups of a thousand and of a hundred soldiers. He will set them to do his plowing and his harvesting, and to make his implements of war and the equipment of his chariots.

He will use your daughters as ointment-makers, as cooks, and as bakers.

He will take the best of your fields, vineyards, and olive groves, and give them to his officials.

He will tithe your crops and your vineyards, and give the revenue to his eunuchs and his slaves.

He will take your male and female servants, as well as your best oxen and your asses, and use them to do his work.

He will tithe your flocks and you yourselves will become his slaves.

When this takes place, you will complain against the king whom you have chosen, but on that day the LORD will not answer you."

The people, however, refused to listen to Samuel's warning and said, "Not so! There must be a king over us.

We too must be like other nations, with a king to rule us and to lead us in warfare and fight our battles."

1 Samuel, Chapter 8, verses 10-20

Marx, Unbound

The view from the Old Left...and I mean the Far Left...or is it the New Left? Via the BBC:

Is the intellectual opinion of capitalism changing? British Marxist historian Eric Hobsbawm, "arguably our greatest living historian" according to the New York Review, discusses the current economic crisis and the problems with a free market economy.

Listen to it here.

The Elections of Kings and Princes

The American republic was designed to accomplish a singular objective: protect American citizens from abuse at the hands of their own government.

Thus it was that we had a federal government divided into three competing powers. 

Thus it was that we had a legislative branch divided into two competing bodies, one based on population and the other based on an equal representation from each state, regardless of population.

Thus it was that we had a division between the powers of the federal government, and those of the individual states. 

Thus it was that the republic encouraged each state to experiment with its owns laws and its own regulations, thereby discovering what worked and what didn't.

And thus it was that we had a long list of explicitly enumerated rights of the citizen that no government could ever take away. 

Alas, the American republic was not built to defend its citizens from the greatest threat to their liberty: the citizens themselves. 

Democracy is steadily dismantling the old restraints of a divided government. Voters no longer want to hear what the government can't do. They want candidates who can "get things done" with economic policy, industrial policy, education policy, energy policy, environmental policy, foreign policy, health care policy, homeland security policy, national defense policy, social security policy, tax policy, veterans benefits, women's rights policy, abortion rights policy, civil rights policy, immigration policy, the distribution of wealth policy, rural policy, technology policy, faith policy, judicial policy, fiscal policy, equality policy, transportation policy, drug policy, trade policy, agriculture policy, housing policy, stem-cell research policy, urban policy, water policy, fishing policy, endangered species policy, historic preservation policy, carbon policy, humanities policy, telecommunications policy, fleet fuel economy policy, national parks policy, public health policy, broadcast spectrum policy, obesity policy and school lunch policy.

In the new American state, limited government means that we get to elect our king every four years, and our princes every two or six. 

Unstoppable Solar Cycles

Before we attempt to manage human impact on the Earth's climate, perhaps we should ask the question, do we really understand what is happening at all?

Voting Schmoting

Economist Gordon Tullock explains why it is perfectly rational NOT to vote...unless everyone else thinks the same way. 

From the WGBH Lab open call for election videos...

As Democracy is Perfected

"[W]hen a candidate for public office faces the voters he does not face men of sense; he faces a mob of men whose chief distinguishing mark is the fact that they are quite incapable of weighing ideas, or even of comprehending any save the most elemental—men whose whole thinking is done in terms of emotion, and whose dominant emotion is dread of what they cannot understand. So confronted, the candidate must either bark with the pack or be lost… [A]ll the odds are on the man who is, intrinsically, the most devious and mediocre—the man who can most adeptly disperse the notion that his mind is a virtual vacuum. The Presidency tends, year by year, to go to such men. As democracy is perfected, the office represents, more and more closely, the inner soul of the people. We move toward a lofty ideal. On some great and glorious day the plain folks of the land will reach their heart’s desire at last, and the White House will be adorned by a downright moron."

H. L. Mencken, The Baltimore Sun, July 16, 1920

From Cafe Hayek.

I Wanna Be Elected

On the eve of the US elections, I offer what is perhaps the most complete expression of political ambition yet attempted in popular music: Alice Cooper's 1972 hit, "Elected."

The lyrics quickly capture the heady mixture of raw ambition, exclusive privilege, religious frenzy, and the desire to control the lives of others that has come to identify most political movements:

I'm your top prime cut of meat, I'm your choice,
I wanna be elected,
I'm your yankee doodle dandy in a gold Rolls Royce,
I wanna be elected,
Kids want a saviour, don't need a fake,
I wanna be elected,
We're all gonna rock to the rules that I make,
I wanna be elected, elected, elected.

By the way, Alice Cooper was NOT elected in 1972. That was the year Republican Richard Nixon crushed Democrat George McGovern. Two years later, amid the Watergate scandal, Nixon resigned in disgrace.

Free Markets and Moral Character

Over at the John Templeton Foundation, they have a deep conversation going on over the Big Question, "Does the free market corrode moral character?"

You can read the essays of famous intellectuals, politicians and celebrities, as well as leave comments of your own.

I didn't make the cut for the starting lineup, so here's what I said in the comments section:

"Perhaps the best way to answer this question is to ask another: does an un-free market improve moral character? Or, to phrase it differently, can coercion improve moral character? I think the answer is found in history. Rare is the man who can exercise such power over others without eventually being corrupted by it. As C.S. Lewis said: Aristotle was right; some men are fit to be only slaves; but I oppose slavery because I do not believe any man is fit to be a master."

Wealth, Work, Riches and Earnings

"Wealth is not so good as work, nor riches so good as earnings."

David Landes, The Wealth and Poverty of Nations.