Post-Scarcity Economics And The Basic Income Guarantee

Universal Basic Income

I’ve been hearing the term “post-scarcity economics” tossed around more frequently in recent memory, including by a lot of smart people, and usually in the same sentence as “basic income”. A college friend of mine (who I have economics debates with somewhat often) as well as the commenter “crocket” bring up post-scarcity quite often, and believe that this condition fundamentally changes the nature of our economic lives.

I must confess that I don’t fully understand what they mean when they refer to “post-scarcity”; having now done significantly more research into it, I can see that this is partly because the term is used inconsistently (some people even claim that we’ve already reached a post-scarcity world!). My initial reaction has always been: “Post-scarcity? There’s no such thing! Even if all goods and services became superabundant, there would still be scarcity in terms of time and space, so the laws of economics will still hold true! Ha!”

And yeah – to the straw man I had created in my head, this is still the correct response. But the actual arguments regarding post-scarcity are at least sometimes a bit more nuanced. In this article, I will explore this concept a little more thoroughly, with a particular emphasis on the alleged implications of a move towards a more post-scarcity world: massive technological unemployment and the need for a basic income guarantee (BIG – or universal basic income, UBI). While I will ultimately arrive at the same conclusions (that is, free markets are still the way to go), I will have to put in a little more effort to defeat those arguments and policy proposals.

 

What Does It Mean To Be In A “Post-Scarcity” World?

Here, I will attempt a sort of Ideological Turing Test with respect to arguments regarding post-scarcity economics. If I have not presented the arguments properly, my apologies – please leave a comment and let me know.

For a very rough idea of what a post-scarcity world would look like, consider Star Trek. Although far from a perfect example of a world beyond scarcity, a piece of technology called a replicator allows for the creation of any material good, quickly and easily, and at no cost. Want some beef tenderloin? Boom, you got it. How about a diamond-studded file cabinet? No problem. Why do you want that? Doesn’t matter.

Replicator Star Trek

It sounds implausible (and friggin awesome!), but it isn’t all that farfetched to think that as technology progresses, something close to a replicator may one day exist. Advances in nanotechnology are bringing us closer to that reality; as 3D printing gets more and more economical, it will certainly become cheaper and cheaper to produce nearly any material good, massively driving down scarcity. Perhaps in 100 years, individuals will be able to 3D print their own disposable private jets at a fraction of the cost of a flight today.

Ultimately, this could lead to a world where goods, services, and information are universally available to individuals without the need for employing capital or engaging in exchange with others in order to acquire them. But before getting carried away in fantasizing about this future, let’s consider what this would actually mean for real people. As manufacturing and services become automated, more and more of the jobs that people need to survive will disappear.

This is where people like me will usually chime in and accuse those espousing the idea of technological unemployment of succumbing to the Luddite fallacy. We argue that technological unemployment does not occur because, while automation may displace workers, the increase in productivity simultaneously leads to lower prices, which then stimulates demand in new industries, leading to the hiring of more workers. Clearly, this has been the case throughout most of human history. But automation is accelerating at an unprecedented pace (some estimate that 47% of jobs in the US will be automated within the next 20 years), so do we have any assurances that this will continue to hold true?

Scott Santens (thank you to “crocket” for pointing me to his articles) provides an example of this kind of acceleration:

“Web design is a newer job. It hasn’t been around very long. However, it’s already easier for people to create their own websites, and it’s also easy for someone in India or China to design a website at a much lower cost than others can possibly bid who have higher costs of living. A barber in the US doesn’t compete with barbers in India, but a website designer does. And the ease of website creation tools makes web designers less necessary, even though this was a job that was JUST created recently.”

Here’s my own formulation of this possible progression:

  1. Robots replace factory workers at creating some good.
  2. The price of that good decreases, leading to increased demand for all sorts of new things, leading to job creation in other industries. New workers need to be hired to design these robot workers as well.
  3. A robot-building robot is created, so the employees of the robotics company all lose their jobs too.

And even if the Luddite fallacy is correct and that, in the aggregate, jobs aren’t lost due to automation, there is still the issue of preventing the temporarily displaced workers from falling into poverty between jobs. When a new mousetrap is invented, how do we ensure that the employees at the obsolete mousetrap factory don’t starve? And what happens as better mousetraps are invented faster and faster?

First, let’s consider the nature of the new jobs that are created as technology progresses. If factory workers are displaced and robot-software writers are in higher demand, it’s not as though the low-skilled former factory worker will suddenly start designing robots. The new jobs may require certain skills – skills which the displaced workers won’t magically possess. This suggests things like unemployment insurance or retraining programs may be appropriate governmental responses.

Even that might be too optimistic, however. It assumes that the jobs that automation is destroying are low-skilled (and thus low paying) ones, and that more highly-skilled (and lucrative) jobs are being created. But what we’ve actually seen is that middle class jobs are largely disappearing, high-skilled jobs have been stagnant, and most job growth has been in low-skilled (and low-paid) industries – and those low-skilled jobs are at further risk of automation in the future anyways. In the meantime, of course, these low wage jobs aren’t necessarily the most satisfying ones. If technical progress is so great and not causing problems, then shouldn’t our lives be getting easier? Shouldn’t we be working less? After all, that was the case for most of history, where labor-saving technology has reduced working hours and increased standard of living.

But that doesn’t appear to be the case. Those who continue to work (and even that number is in decline) are working longer hours than before, as Scott Santens points out.

“The combined effects of technology and the globalization enabled by it are eating jobs, but for those left working (who are by and large earning less), they actually need to work more. Instead of jobs requiring the 5-6 hours of work a day they actually on average now require, we clock in more than 8 hours as a matter of survival. Instead of working one full-time job 40 hours a week, we work one full-time job 47 hours a week, or multiple part-time jobs even more than 50 hours per week to compensate for the lower pay.”

The solution that he proposes is to sever the connection between work and income – perhaps by instituting a basic income guarantee, where the government gives everyone some amount of money without any conditions or strings attached.

“If technology has reached the point where hardware and software are together doing much of our work for us, then we have to pay each other what our technology is not earning as income and not spending into the economy as a consumer. We have to give it to ourselves and spend it ourselves, because it’s not going to…We need to make sure everyone starts earning a non-work related income so that everyone can be consumers in an economy increasingly populated by non-human labor.”

Markets are sub-optimal under current conditions. People without money cannot “vote with their dollars” for the goods that they want, but a basic income could address this problem.

“Right now only those with the means to pay for bread have a voice for bread. We love to use the term, “voting with our dollars”. So is the outcome of that daily election accurate? Does everyone have a voice for bread? No, they don’t. There are people with no voice, because they have no dollars. The only way to make sure the market is working as efficiently and effectively as possible to determine what should be getting made, how much to make of it, and where to distribute it, is to make sure everyone has at the very minimum, the means to vote for bread. If they have that money and don’t buy bread, there’s no need to make and distribute that bread. If the bread is bought, that shows people actually want that bread.”

People such as myself often complain that a basic income would dramatically reduce work effort, but when tested, the reduction in employment or hours worked has been small.

“The findings from the accompanying large-scale experiments done in cities like Seattle and Denver found that surprisingly, hardly anyone actually stopped working, and instead reduced their hours slightly, with men reducing their hours the least – by a maximum of 8%. This slight reduction in hours was then replicated to even less of a degree in Canada’s Minimum Income (Mincome) experiment, with men choosing to work as little as 1% fewer hours.”

For a little while, the robotic revolution started to look bad – but with a basic income, it is something to be celebrated! We can work towards a future where jobs simply aren’t necessary. Everyone gets paid, everyone can afford to live, and time will be freed up for people to work on things they are passionate about. More art, more music, more leisure, more open-source collaboration….more creativity, in general. In other words, a basic income would help us truly usher in a more Star Trek-esque existence! From Rick Webb’s influential article on The Economics of Star Trek:

“Imagine there’s some level of welfare benefits in every country, including America. That’s easy. That’s true. Imagine that, as the economy became more efficient and wealthy, the society could afford to give more money in welfare benefits, and chooses to do so. Next, imagine that this kept happening until society could afford to give the equivalent of something like $10 million US dollars at current value to every man, woman and child. And imagine that, over the time that took to happen, society got its shit together on education, health, and the dignity of labor. Imagine if that self-same society frowned upon the conspicuous display of consumption and there was a large amount of societal pressure, though not laws, on people that evolved them into not being obsessed with wealth. Is any of that so crazy? Is it impossible?

“Citizens have no financial need to work, as their benefits are more than enough to provide a comfortable life, and there is, clearly, universal health care and education. The Federation has clearly taken the plunge to the other side of people’s fears about European socialist capitalism: yes, some people might not work. So What? Good for them. We think most still will.

“…presumably, you take whatever job you want, and your benefits allocations are adjusted accordingly. But by and large you just don’t care, because the base welfare allocation is more than enough. Some people might care, some people might still care about wealth, such as Carter Winston. More power to them. They can go try and be “rich” in some non-Federation-issued currency. But most people just don’t care. After all, if you were effectively “wealthy” why would you take a job to become wealthy? It pretty much becomes the least likely reason to take a job.”

Basic Income Robots Took My Job

But, as Marshall Brain argues, this is not inevitable, and we are at a fork in the road where society can either move towards this amazing future, or degenerate into a cesspool of inequality and poverty.

“With most of the rank and file employees replaced by robots and eliminated from the payroll, all of the money flowing into a large corporation has only one place to go — upward toward the executives and shareholders. The concentration of wealth will be dramatic when robots arrive.”

Workers will get none of this, because there will be no workers. The basic income will prevent the masses of unemployed from falling into abject poverty, while freeing people to innovate.

“It would be a huge boost to the American economy:

  • The economy would be strong because of all of the consumer spending.
  • The economy would be stable because income (and therefore spending) would be guaranteed.
  • With $25,000 per year to spend, innovators would no longer be forced to work — they could focus their energy on innovation, living off of the $25K per year they receive. Inventors would have time to invent, writers to write, entrepreneurs to breed new companies, etc. They could devote all of their time to innovation.
  • There would be billions of dollars for people to invest, especially in their own businesses. And investors would have a stable marketplace into which to introduce new products.

Most importantly, it would create a nation where the citizens are truly free. If every person had $25,000 per year in today’s dollars to spend, they would be able to live their lives even if they lost their jobs. If robots took their jobs it would not be catastrophic. People would be able to weather the robotic takeover, retrain and move into new careers.”

Of course, giving everyone $25k/year will be expensive – where will that money come from? He proposes a few suggestions, some better than others.

  • Sell ad space on the back of dollar bills
  • As in Alaska, the revenue from government selling natural resources can be put towards basic income
  • Fining corporations for flouting regulations
  • Auctions of state property [I like this one!]
  • Lotteries [but then the money is coming from the rubes who buy into the lottery…doesn’t seem like much of a solution to me]
  • “Extreme” income taxes on wealth above some high amount
  • “Extreme” estate taxes
  • “Excessive” profit taxes
  • Sin taxes and/or taxes on luxury items
  • Selling copyright extensions
  • Selling naming rights
  • Punitive damages from lawsuits can go into a central fund and be disbursed to the people instead of going into government coffers [I kind of like this idea…but shouldn’t the punitive damages go to the victim, rather than everyone?]
  • A national mutual fund, owning shares in every corporation in the US and that every citizen has equal ownership. When a company incorporates, some percentage of its shares are automatically given to the fund. Or, when a corporation declares retained earnings, some of these are used to buy up shares and provide them to the national mutual fund.

Of course, much of the funding would come from dramatically reducing or eliminating other welfare programs and subsuming all aid under the basic income banner.

By the way, for a more “moderate” view of what to expect during the progress toward post-scarcity, I recommend reading the essay “Economics of the Future” by Melanie Swan.

 

The Real Path To Post-Scarcity

Okay, Ideological Turing Test over. Note that many if not most supporters of the basic income would not think of their position in the way described above – not everyone supports it on the basis of technological unemployment and post-scarcity. I suspect that the majority of progressives who support basic income do so because it “helps the poor” or some generic platitude like that. There are even a good number of libertarian supporters of basic income, including Matt Zwolinski and Peter Vallentyne, who think that it would be a better replacement for the bloated and inefficient welfare state.

It’s also becoming more important to address the arguments over basic income considering how it is becoming more significant politically, and will likely become a reality in some places in the near future. But before discussing the issues with a basic income, I want to make a few comments regarding the post-scarcity argument sketched above.

The otherwise brilliant Stephen Hawking essentially summarizes the argument as follows:

“If machines produce everything we need, the outcome will depend on how things are distributed. Everyone can enjoy a life of luxurious leisure if the machine-produced wealth is shared, or most people can end up miserably poor if the machine-owners successfully lobby against wealth redistribution. So far, the trend seems to be toward the second option, with technology driving ever-increasing inequality.”

But how does this make sense? If goods are superabundant, how can people be miserably poor? Presumably, the massive class of poor people would exist if all of the superabundant goods are owned by a wealthy elite who refuse to share (and if they have more than they know what to do with, why wouldn’t some of it get shared?). This seems like an odd conclusion to me, for a few reasons.

First, if technology makes most goods ridiculously cheap or even free, then these goods would be accessible even to poor people. In particular, the prices of the factors of production, such as robots or other automation technology, will go down dramatically as we move towards this world. As 3D printing gets cheaper and cheaper, we get closer to the world of “replicators”. Since the means of production are cheap, they are easily available to a wide segment of the population, which allows this large group to become effectively self-sufficient. I don’t really need a job if I have a machine that lets me print my food, clothing, etc. There’s no need for a basic income or any kind of wealth redistribution here.

Not only that, but the proliferation of machinery doesn’t preclude people from working in exchange for money. So long as an individual’s marginal productivity is greater than zero, there is something that they can do (unless government regulations like the minimum wage get in the way, of course). Machine ownership doesn’t eliminate gains from trade, so machine-owning people will still specialize in things and exchange goods and services with others. If there is economic activity like this, then people will be capable of supporting themselves – with a vastly higher standard of living.

In general, it seems like those who support the basic income on the basis of post-scarcity economics do so as a step on the path to a post-scarcity world, but find it somewhat irrelevant once we have reached post-scarcity, since goods are freely available. But there are certain goods or industries where we have already reached post-scarcity; for instance, digital goods (intellectual property laws merely get in the way of true post-scarcity here). If we’ve reached post-scarcity in some industries without basic income, why would it be necessary for ushering in post-scarcity in general?

The reality is that, absent government intervention, the path towards post-scarcity will be a wonderful one. It has already been happening since the advent of capitalism, despite the ways in which governments and their corporate allies collude to produce artificial scarcity. Poverty has dramatically declined over the previous two centuries.

absolute poverty reduction

As scarcity continues to be reduced over time via capital accumulation, people will become increasingly rich, just as we are incredibly wealthy now compared to people in the Middle Ages. Back in the day, the norm was subsistence living. Nowadays, most of those we consider poor have things that would have been considered luxuries 100 years ago, and are certainly not living in their own filth like the masses did prior to capitalism. I’m not saying it’s great to be poor today (plus, there are still some living in truly abject poverty, but mostly in the third world), but the life of today’s poor is incomparably better than that of nearly everyone before capitalism and (relatively) free markets led to capital accumulation.

So, moving forward, what happens as this process of technological advancement and capital accumulation accelerates dramatically? Does technological unemployment become the serious issue that post-scarcity theorists (and Stephen Hawking) imagine?

More likely, as we got closer and closer to replicator-like devices, production costs would drop dramatically faster than wages would, such that real incomes would skyrocket. If a year’s worth of food costs a dollar, people would be willing to work for dramatically lower nominal wages. Someone making “merely” a dollar per day in this world would have access to more real resources than most of us are used to. Who cares if 90% of today’s jobs are wiped out by automation? Anyone would be happy to work for a dollar per day (or less), and anyone who does have resources would hire them to do whatever – perhaps things like creating art, music, and literature to increase culture in this post-scarcity world. What about the “worst” case scenario where machines replace all our jobs? That would be fantastic! We could just sit around and enjoy it!

The upshot is that robots and automation will make us incredibly wealthy, and our lives vastly easier. Comfort and even luxury will be available to the masses. This could very well reduce the “need” to work or “eliminate jobs” in a certain sense. It will allow people to pursue whatever they want – writing, making music, inventing things, coding, etc., with far less pressure to survive, and far more freedom. This is a fantastic thing, and does not require basic income at all. It makes surviving and thriving even without a basic income that much easier. In fact, a basic income is liable to delay or even prevent this future from occurring.

Let’s keep in mind that we will not reach post-scarcity due simply to technological advances alone. While necessary, the accumulation of sufficient capital is also necessary to allow us to utilize these technologies. And capital accumulation is far from a given – government policies that discourage production, savings, and investment will all slow it down, or even lead to capital destruction. The basic income discourages work, and thus production. It also discourages saving and investment, due to the higher taxes involved as well as the existence of a safety net which would leave little incentive to save. Those who argue for basic income seem to believe that production just happens on its own, and has nothing to do with the existing institutional structure.

Ultimately, technological unemployment comes from automation advancing more quickly than people can learn new skills. But perhaps technological advances will close this gap as well. Brain-computer interfaces could allow us to more directly upgrade the human mind so that we can easily adapt to new job demands as they crop up, should we so desire. This would arguably make the whole discussion moot.

 

Basic Income Problems

Basic Income Bad Time

The favored policy proposal of those futurists looking to usher in a post-scarcity world is some variation of basic income. I say “variation” because most of what has actually been tested in the real world is a negative income tax (NIT), something a little different from the basic income, which is just a flat payment for everybody. The NIT would be a single payment that supplements the income of the unemployed or low-paid, and gradually decreases as income rises. Both policies share the quality of providing a minimum income for everyone. In practice, the two are essentially the same, since basic income proponents generally concede that it would be necessary to “claw-back” some funding from the rich through the tax system in order to make it affordable. The NIT provides an amount of money that varies by income, and the basic income provides the same amount to everyone but taxes different amounts to make it back. As such, I will largely consider the two policies interchangeable in this section (and use the term “basic income” to mean either, unless otherwise specified), though technical details differ.

Supporters of basic income proposals often point to several experiments that were done during the 20th century and showed, according to them, that the primary fear of basic income detractors – reduced work hours and employment – did not materialize. Unfortunately for its proponents, these basic income experiments need not be interpreted so generously, and contain methodological flaws that are even more damaging. A great summary of some of these experiments is provided by John Goodman:

“The experiments were all controlled. Randomly selected people were assigned to a “control group” and an “experimental group.” The latter received a guaranteed income, and the program even used Milton Friedman’s term for it: a negative income tax. The largest, longest and best-evaluated of these experiments was SIME/DIME (Seattle Income Maintenance Experiment/Denver Income Maintenance Experiment) in Seattle and Denver. And the results were not pretty. To the dismay of the researchers, they largely confirmed what conventional wisdom had thought all along. As I reported in “Privatizing the Welfare State“:

  • The number of hours worked dropped 9% for husbands and 20% for wives, relative to the control group. For young male adults it dropped 43% more.
  • The length of unemployment increased 27% among husbands and 42% for wives, relative to the control group. For single female heads of households it increased 60% more.
  • Divorce increased 36% more among whites and 42% more among blacks. (In a New Jersey experiment, the divorce rate was 84% higher among Hispanics.)

BTW, these results have been studied and studied over and over again and there is a large literature on them ― almost all of it written by researchers who detested the outcomes. Good summaries are provided by Charles Murray and Martin Anderson.

Both authors point out that the results are even worse than they appear at first. For one thing, the “control group” had access to conventional welfare available in the 60s and 70s. So this was by no means a pure (welfare free) control group. Also, the enrollees were given different instructions about how long they could expect their guaranteed income to last. It turns out that the longer the guarantee, the worse the negative effects.” [emphasis mine]

In other words, these basic income experiments demonstrate what us detractors most fear – a demonstrable loss of work effort. Many of the post-scarcity writers look at this as a positive, but as we saw above, we need people to continue working and producing if we are ever to achieve this post-scarcity dream. 

A basic income supporter, Philip K Robins, analyzed the consensus estimate of labor supply effects of these negative income tax experiments. The conclusion is that males and heads of households worked two fewer weeks less per year, wives and single women head-of-households lost three weeks per year, and youths supplied four fewer weeks of labor. Since women and young people generally work fewer hours than men, the percentage decrease in their labor supply was dramatically greater. What social effects might this have, as youth grow up and become heads of households, but have significantly less work experience?

These estimates of labor supply lost may not seem catastrophic, but methodological issues with these studies suggest that the effects of basic income policies could be substantially worse. These experiments take place over a very limited time and space, so peoples’ expectations about the future of the program are very different. If the basic income experiment only exists in your town and for only a couple years, you know you will need to work in a few years or if you move, so you are more likely to continue working now in order to keep up your skills and employability (though in some experiments, recipients continued receiving benefits even if they did move). But if a basic income were widely applied, people wouldn’t expect to need to work a year later. In other words, the basic income experiments are heavily biased. Research (Halla et al) demonstrates that the effects of the welfare state take time to kick in, so these experiments that only lasted for a limited period of time are not accounting for the full employment effects.

“Our findings corroborate the theoretical literature which assumes that disincentive effects of a generous welfare state materialize only with some time lag. In particular we show that a high level of public social expenditures and a high unemployment rate are associated with small positive (or no) immediate impact on benefit morale, which is crowded out by adverse medium and long run effects…Our results are consistent with the fundamental supposition that individuals do not response [sic] to changes in economic incentives immediately, since they are constrained by social norms for some time. Essentially, our results suggest that the welfare state destroys its own (economic) foundation and we have to approve the hypothesis of the self-destructive welfare state.”

For what it’s worth, there is some empirical evidence that a basic income, as opposed to a negative income tax (the above experiments used a NIT), is likely to cause even greater labor supply issues. As the fraction of negative income tax recipients increases in a population, the number of labor hours decreases. The basic income, of course, raises that fraction to 100%.

In addition, these experiments do not create “closed” systems, where the costs of the program are borne in aggregate by the same group who benefits. The tax revenue for a larger geographic area is used to fund an experiment over a small subset of it, so only the positive aspects of basic income are studied, without looking at the costs. In other words, if the town where the experiment was conducted saw an uptick in economic activity, this is because they sucked money out of other areas. A properly run experiment would have Seattle taxpayers funding the Seattle basic income.

A study by the Boston Fed analyzed the basic income/negative income tax experiments in more detail, both positive and negative effects. Here are a few:

  • “As much as 40 to 58 percent of the added transfers for two-parent families would be offset by earnings reductions on the part of husbands and wives. The problem is less severe in the case of single mothers, where earnings would fall by only 16 to 20 percent of additional costs.”
  • Luckily, recipients did not squander their money on fancy cars and drugs, like some conservatives fear: “Consumption rose modestly, as would be expected with a slight rise in income, but the pattern of expenditures remained unchanged from that which existed in the absence of the payments.”
  • Youths spent additional time and money on education, at least during the experimental period. However, scholastic performance did not improve.
  • There was no beneficial impact on healthcare outcomes or psychological well-being.

The study also noted some issues with the experimental design.

“Arnold Zellner and Peter Rossi touched off a heated debate with their sharp criticism of the goals, design, execution, and analysis of the income maintenance experiments. In their opinion, inadequate attention was devoted to formulating clear-cut objectives. For example, to the extent that the goal was to estimate the cost of alternative negative income tax plans, the experiments were not really designed to provide the appropriate information. Feasibility studies or pilot projects were generally nonexistent. Serious measurement problems were not adequately resolved. Design statisticians, survey experts, and other specialists did not play an active enough role in the planning and execution of the experiments. Management and administration procedures were not completely satisfactory, Policymakers and researchers did not share clearly stated objectives. The experimental designs and the models on which they were based were frequently inadequate. Finally, the quality of reporting of results left much to be desired.”

“Charles Murray added three other reasons why the experiments failed to determine whether the negative income tax was good policy. First, no minimum baseline income standard exists that will enable everyone to have a decent standard of living. The conventional poverty index is meaningless, because it cannot discriminate between living a low-income life in the inner city and in a small town. A family at the poverty line might live decently in a civilized, functioning community, such as a small town in Missouri or Colorado, but be unable to survive on two or three times that amount in the South Bronx. Second, no one has considered what happens after a negative income tax is introduced nationwide and some people still have inadequate food and shelter; the merits of an income maintenance scheme that supplants the current system are very different from one that supplements it. Finally, the experiments were forced to focus on measurable outcomes and therefore provide no insights on noneconomic rewards, such as the psychic gains that people receive from earning their own income.” [emphasis mine]

There was an actual historical instance in Speenhamland, England, where a basic income guarantee was instituted which is far more instructive than looking at these flawed experiments.

“The experiment was the Speenhamland system, which was implemented in England 1795 and dismantled in 1834, was intended to make sure that country laborers had enough income to live. It was intended as an emergency measure to help the poor when grain prices had risen sharply due to meager harvests. The justices of Berkshire decided to offer income support to supplement wages, with the amount set in relation to the price of bread and the number of children in the household, so that the destitute would have a minimum income no matter what they earned.

Even though it was never codified as law, the Speenhamland approach was adopted in country towns all across England and in a weaker form in some factory towns. It was widely seen as a “right to live.” It was neither universal nor consistently implemented, but it nevertheless appears to have been fairly widespread. It reached its peak during the Napoleonic Wars, and was wound down in many small towns before it was effectively abolished by the new Poor Law of 1834. Not surprisingly, the Speenhamland system existed in its strongest and most durable embodiment in areas where the threat of violence by the impoverished was real. But another reason it lasted as long as it did despite the costs it imposed on local landlords was it kept the poor in place with their wages fixed at a bare subsistence level. Rural property owners wanted to keep workers from decamping to towns and cities in search of better paid employment. A smaller pool of local laborers would lead to higher wage levels.” [emphasis mine]

The basic income also dramatically reduced productivity. Quoting Karl Polanyi,

“Under the Speenhamland Law, a man was relieved even if he was in employment, as long as his wages amounted to less than the family income granted to him by the scale. Hence no laborer had any financial interest in satisfying his employer….Within a few years, the productivity of labor declined to pauper level, thus providing an added reason for employers not to raise wages above the scale. For once the intensity of labor, the care and efficiency with which it was performed, dropped below a definite level, it became indistinguishable from “boondogling”…” [emphasis mine]

How is this more humanitarian? How would this help usher in the prosperous, post-scarcity world that we seek? The effect was to make people complacent, but remain living at a subsistence level – while simultaneously decreasing overall productivity in the economy as a whole. Clearly, this result would hamper progress towards post-scarcity.

That being said, there are admittedly both pros and cons to a guaranteed basic income. Michael Tanner of the Cato Institute performed an analysis. Some advantages include

  • More transparency than our current system
  • Potential savings on administrative costs
  • It is less intrusive and paternalistic to the poor than the existing hodgepodge of programs.
  • If administered properly, it could replace some of the disincentive to work that current welfare programs provide, by not penalizing individuals who do choose to work. For more on this, see Ed Dolan’s articles here and here.
  • It could reduce the bias against marriage that current welfare schemes have.

Done properly, I believe that a libertarian could reasonably support a basic income if it completely substituted the awful welfare programs that already exist. However, it is poor policy on its own, and it is far from certain that it would end up replacing welfare rather than just getting added on top of it.

The cost of implementing a basic income would be enormous, particularly if it didn’t replace Social Security and Medicare – programs that, politically, would be vastly more difficult to replace than the standard welfare programs.

“The current poverty level for a single nonelderly individual is $12,316. Spread over 296 million U.S. citizens, the cost of such a program would be nearly $4.4 trillion, more than our entire federal budget today, and more than 4 times our current welfare expenditure (including both federal and state welfare spending). Even if the guaranteed national income replaced every existing anti-poverty program, we would still be some $3.4 trillion short.

“According to the most recent Congressional Budget Office estimates for the cost of federal programs, eliminating all income transfer programs—the entire edifice of the American welfare state—including Social Security, Medicare, Medicaid, unemployment insurance, and so forth (but excluding tax expenditures), would yield only $2.13 trillion. If we also included so-called tax expenditures such as the mortgage interest deduction and the exclusion of employer contributions, as well as Social Security, and EITC and CTC related tax expenditures, we could add an additional $393 billion for a total of $2.5 trillion. That still wouldn’t be enough.” [emphasis mine]

The basic income would also provide an absurdly large windfall for families with lots of children. Each marginal child costs significantly less to raise, so large families could be raking in far more than the poverty level, particularly compared to single individuals. Surely, there would be abuses – parents who have children solely to collect the extra money, but don’t actually take care of their kids. Of course, this issue could be eliminated by only giving adults the benefit, rather than everyone. If payments were restricted in this way, the cost of the program would decrease to a “mere” $2.7 trillion, which is still too high (and the added complexity of the program would require further administrative costs).

income tax

As an aside, there are some who, following Georgist philosophy, believe that funding from natural resource rents could be used to provide a livable income for everyone. These people grossly overestimate the value of these rents. I will not go into detail here, but the interested reader can check out this and this.

Other factors will add to the practical complexity and difficulty in implementing a basic income guarantee. What is to be done about immigration? If the US had a basic income, the borders would need to be locked down in order to stem the influx of immigrants from poor countries, or else see the costs of the program skyrocket further. But a primary argument in favor of basic income is the humanitarian one of making sure everyone can live a life without abject poverty. It seems, to me at least, that excluding foreigners who most likely need that money more would run counter to this intent.

And what about people with disabilities? Are they paid the same amount as everyone else, despite clearly having a higher need? Do we need to bring disability insurance back into the overall welfare scheme? It seems highly unlikely that a basic income would actually be as simple as its proponents claim, or that it would eliminate all other welfare benefits. And all of this added complexity, of course, adds further administrative costs. Think of it this way: if someone gets sick, did not purchase health insurance, and requires more health care than they can afford with the basic income, do you honestly think people will just say “okay, it’s time for you to die now!”

There will also be regional differences in what a livable income would be, so payments could not simply be the same for everyone. A livable income for someone in rural Montana might be four times less than someone living in a major city. And what happens when people move? Or for people who travel frequently? Again, more administrative costs.

Political pressure will likely lead to increases in the per person expenditure as well, making the program more and more costly over time, more prone to special interests, and could add further complexity and administrative costs to the program.

A paper by Peter Boettke and Adam Martin explored the political issues surrounding a basic income. Making major changes to any redistributive program would lead to disharmonies of interests, and thus winners and losers…and the concomitant lobbying efforts to capture the benefits or avoid the losses that a basic income guarantee would entail. Either taxes need to be raised, or existing programs would need to be cut, or both; in any case, rent-seeking will surely occur.

“If the BIG were to be funded by new taxes, they would in all probability be progressive. Tax burdens apportioned “progressively” by definition fall asymmetrically across the population, laying the groundwork for both rent-seeking and countervailing distributional forces to work from the bottom up (c.f. Wagner 1989, Ch. 4). A tax burden concentrated on the rich creates a strong incentive for a small group to lobby to introduce various loopholes and provisions to offset the burden.”

There would be some small groups where a disproportionate share of the cost of the basic income would fall. These groups clearly have an incentive to lobby for restrictions on who receives the money. How long before former convicts are excluded? Or drug tests become mandatory?

How long before some opportunistic politicians are calling for a suspension in basic income payments to the wealthy, particularly during a fiscal crisis (and given the expense of a basic income, there surely will be some)? How long before that politician proposes that payments to the poor increase when the economy is doing poorly? It’s easy to see either of these measures succeeding, and they would both create interest groups that are likely to engage in rent-seeking.

“The same forces that make concentrate gains on special interests in the current system will be at play in any attempt to reform the system. But regardless of whether BIG replaced or were added to other policies, its passage would be at the mercy of special interests in order for it to be passed at all. How long would the debate proceed before a proposal like “supplements” to basic income for the needy or the deserving (i.e., public employees such as teachers) were proposed?”

I suppose, in theory, a constitutional amendment establishing basic income could reduce some of these problems. But then, how could all the complexity that IS necessary (for instance, regional differences) in a basic income policy be enshrined in the hard-to-alter constitution? How would any necessary changes be implemented effectively? And, perhaps most importantly, the constitutional has proven itself time and again insufficient for protecting the rights of Americans.

 

Conclusion

The dream of a post-scarcity world is an alluring one. The future may be filled with Star Trek-like replicators, allowing us to be live in comfort, free from the need to work, and with the time to pursue our personal interests at our leisure. Many futurologists and progressives believe that we are at a fork in the road – either adopt a basic income and move towards this fantastic post-scarcity world, or live in a dystopian world with a tiny elite that own all the machines and a mass of unemployed living in poverty.

These theorists lack a basic grasp of economics. We may one day approach something like that post-scarcity world, but it will require capital accumulation to get there. A basic income would result in a loss of productivity from a decreased work effort and withdrawal from the labor force. This could lead to the consumption of capital, or at least slow its growth; in either case, the basic income takes us further away from post-scarcity.

Environmental Issues: An Anarchist Perspective, Part 2 – Global Warming

This piece is continued from part 1, which argued that the environment would be better protected in an anarchist society due to respect for private property rights. Read that post here.

 

global warming did it

By far, the most talked about environmental issue of our time is climate change, or global warming. It is critically important to separate the political and the scientific elements of the global warming hypothesis. Unfortunately, almost nobody does this. Instead, the typical narrative is something along the lines of:

  1. Anthropogenic (man-made) global warming (AGW) is happening due to carbon emissions, and the science is settled.
  2. Therefore, the government must act to curb carbon emissions, thereby saving humanity.

That’s roughly what the majority of leftists think. Here’s what most conservatives would say:

  1. AGW is false.
  2. Therefore, government need not do anything.

In other words, the political debate is mostly about the science – is the AGW hypothesis true or not? Consider that none of the politicians who actually have some sway over environmental policy are experts in climate science. Consider that very few of the random people who claim that “the science is settled” know even the basics of how science works. On what basis are these people determining that AGW is true or false?

The answer, of course, is that there is no basis. Conservatives think the science has a different conclusion than liberals do. This is a huge red flag; science ought to be non-partisan.

But here’s the rub: for both sides of the debate, if AGW is true, this automatically implies that government action is necessary to mitigate its effects. This is logically fallacious. There are many reasons why government action would not be appropriate in this situation, which I will detail in the remainder of this post.

I am not a climate science expert myself. However, I am a nerd, and have done significant amounts of research on the subject. I will remain agnostic on the science of AGW – it’s certainly possible and plausible, but it is not certain. My argument for anarchy being superior for the environment does not hinge on any scientific arguments. However, since the majority of people who I would be attempting to persuade with this post are most likely those who believe AGW to be true, I will present some of the arguments for why scientists do not believe humans are causing catastrophic global warming.

The climate narrative presented above is very far from complete. Liberals say AGW is true, so government must act. But here are a few things that must be demonstrated in order to complete this narrative, most of which have yet to be shown conclusively:

  • It must be proven that global warming is occurring.
  • This global warming must be caused by human action.
  • If AGW is true, it must still be shown that this will definitively lead to particular changes in climate over the next 100 years or so.
  • These changes must be drastic rather than “lukewarm.” In other words, the climate must change to a degree that matters in a practical rather than just academic sense.
  • It must be shown that global warming is a bad thing. In other words, the effects of global warming must on the whole be destructive rather than helpful. The economic costs of this harm would then need to be estimated with some precision.
  • It must be shown that it is not too late to stop the destructive global warming; human action must be capable of slowing or stopping it. The cost of stopping/slowing global warming must be estimated with some precision.
  • It must be shown that the costs of attempting to stop or slow global warming are less than that of trying to adapt to it.
  • It must be shown that the (cost-effective) method used to attempt to stop or slow global warming is feasible and politically workable. In other words, it must be possible to actually implement whatever reforms would be necessary.

As you can see, the mainstream narrative is sorely lacking. Each of the above points needs to be studied and verified before drawing the conclusion that government action is necessary. For the remainder of this article, I will attempt to pick these points apart in order to demonstrate that AGW is not a sufficient reason to justify government action.

 

The Alleged “Consensus”

The first thing that nearly any layperson will say about anthropogenic global warming is that “the science is settled.” It boggles my mind that even scientists who ostensibly are familiar with the scientific method can say this. What matters in science isn’t how many people believe a theory, but rather how successful that theory is in predicting real life events. If that weren’t the relevant metric, then the Earth would still be flat and the sun would still be revolving around us.

The idea of a scientific theory being “settled” is anathema to the scientific process itself. In any empirical science, climate science included, our knowledge is always just a theory subject to being disproven. Some theories are far more established than others; for instance, the theory of gravitation is pretty damn well-established. But even gravity has its challengers (see this and this). AGW is a theory that is only a few decades old, and runs counter to climate science’s global cooling orthodoxy during the 1970s. To claim that the science is “settled” is to have incredible hubris, particularly given the numerous scientists who would argue otherwise.

I have no doubt that many climate scientists today support the idea that humans are causing global warming. A commonly cited study claims that 97% of scientists agree that humans are causing global warming, but the study says no such thing. However, peer-reviewed research has shown that the majority of geoscientists and meteorologists do not think that there is catastrophic, man-made global warming. The Petition Project also has the signatures of nearly 32,000 scientists in relevant disciplines who disagree with the hypothesis. You can find here over 1300 peer-reviewed papers that are skeptical of AGW. Even the founder of Greenpeace, the radical environmental organization, thinks that carbon dioxide emissions are more likely to save humanity than to doom it!

Richard Lindzen, former MIT professor and contributor to IPCC reports on climate change, is one of the more prominent climate skeptics. He questions the odd attempts to characterize climate scientists as universally agreeing on AGW.

“Why, one might wonder, is there such insistence on scientific unanimity on the warming issue? After all, unanimity in science is virtually nonexistent on far less complex matters. Unanimity on an issue as uncertain as “global warming” would be surprising and suspicious. Moreover, why are the opinions of scientists sought regardless of their field of expertise? Biologists and physicians are rarely asked to endorse some theory in high energy physics. Apparently, when one comes to “global warming,” any scientist’s agreement will do.

…The answer almost certainly lies in politics. For example, at the Earth Summit in Rio, attempts were made to negotiate international carbon emission agreements. The potential costs and implications of such agreements are likely to be profound for both industrial and developing countries. Under the circumstances, it would be very risky for politicians to undertake such agreements unless scientists “insisted.””

It is political realities that make the supposed “consensus” so critically important. Few things would give the government such power and supposed “legitimacy” as saving the world from destruction by controlling nearly all human behavior. And then there is the big money involved.

“U.S. companies and interest groups involved with climate change hired 2,430 lobbyists just last year, up 300% from five years ago. Fifty of the biggest U.S. electric utilities…spent $51 million on lobbyists in just six months.”

Climate skeptics are routinely vilified for not disclosing their funding sources, but climate alarmists seem to be held to a different standard. The reality is that there is a lot of money on both sides corrupting the narrative, making it difficult to know what to believe.

But for most people, it does seem that the choice of what to believe is primarily partisan and has nothing to do with science. That might be why people seem to care so much about this issue (some even advocate that climate skeptics be thrown in jail). As Lindzen said, “Rarely has such meager science provoked such an outpouring of popularization by individuals who do not understand the subject in the first place.”

The supposed consensus is purely a political concept, not a reality.

 

There’s Reason To Be Skeptical

Despite what many ignorant people will tell you, there are many reasons why one might be skeptical of the idea of man-made global warming. Unfortunately, I cannot speak to the climate science itself, but there are enough questions about the theory to at least make it worth, well, questioning. More importantly, there are theoretical reasons why one ought to be skeptical of the claims made by AGW supporters.

Scientists generally agree that carbon dioxide in the atmosphere directly increases the temperature. Most of the climate models’ predicted increase in temperature is due to feedback mechanisms. Those who believe in AGW think that there is a positive feedback loop that will exacerbate that temperature increase. But there are also some reasons to believe that there would be negative feedback that might dampen the effects of global warming. There are thousands of feedback mechanisms, most that are not well-understood or even known, each with its own positive or negative effects. The only way to check is through gathering data and testing the hypothesis – and climate change models have almost universally overstated the effects of global warming thus far.

For a more thorough defense of global warming skepticism, I suggest reading this paper by William Irwin and Brian Williams. Among other arguments, they bring up the fact that

  • The increase in global temperature from 1980 to 2010 is similar to that of the increase in 1910-1940, which is typically not attributed to human activity. And from 1940-1980, temperatures did not increase the way AGW climate models would predict.
  • Recent changes in global temperature are insignificant compared to historical changes that were not caused by humans, such as the Medieval Warm Period and the Little Ice Age. In fact, we’re just coming out of the Little Ice Age now, which could explain the warming.

They also call attention to what appears to be a flaw in climate alarmists’ reasoning.

“Everyone acknowledges that CO2 is a greenhouse gas. Skeptics, however, believe that human contributions will likely not result in catastrophic warming, since combinations of other forces play a larger role in heating and cooling the planet. When proponents of AGW theory assert that the warming may be occurring beneath the cooling, this amounts to admitting the skeptic‘s position that there are other, more powerful factors that affect temperature and control the climate. It is inconsistent to say that anthropogenic infusions of CO2 will control the climate and cause catastrophic warming one minute and the next minute to say that the influence of this same CO2 is masked beneath larger factors.”

Despite far lower CO2 levels, it was significantly hotter during the Middle Ages than it is today. And there are historical periods with vastly higher CO2 levels where the Earth was covered in glaciers.

temperature fluctuations

For those of you interested in an overview of the scientific arguments, I suggest spending some time reading this article, written by David Siegel, an environmentalist who formerly believed in AGW but has since then done his research and changed his mind. I particularly suggest you read this if you are a liberal or consider yourself an environmentalist, because this is the perspective that he is coming from.

It’s certainly possible that supporters of AGW have answers to each of these. Again, I’m not a scientist and I don’t want to debate the merits of the specific scientific positions of each side. My point here is to show that there are reasons why the claims of AGW supporters shouldn’t be accepted uncritically. More importantly, there are structural and institutional reasons to question the climate orthodoxy, which will be covered in the next sections.

Chaos Theory, Or Why We Can’t Trust Climate Models

“In climate research and modelling, we should recognize that we are dealing with a coupled non-linear chaotic system, and therefore that the long-term prediction of future climate states is not possible.” – IPCC 2007

What makes a scientific theory a theory? There are three conditions, and AGW fails them:

Is the theory testable? Can we formulate hypotheses grounded in the theory, then figure out a way to test the hypotheses?

Is the theory falsifiable? Is there evidence that could call the theory into question? What evidence would exclude the theory?

Does the theory unify? Does the theory unify seemingly unrelated phenomena under a single explanatory framework?”

Many natural phenomena are not testable, so I will not consider this as a strike against AGW. However, AGW is not falsifiable; when the evidence doesn’t match the conclusion, climate alarmists can simply say that the time scale of the investigation is not wide enough. This is telling, because the predictions of AGW supporters and their climate models are routinely wrong and overstate the observed warming effects. AGW purportedly explains all sorts of environmental phenomena in a unifying way – except that again, most of these phenomena (ocean acidification, melting ice) either have not occurred as predicted, or there are alternative explanations that are also plausible.

The primary reason why these models are failing at prediction and should be dismissed is due to the nonlinear dynamics of climate systems. Nonlinear dynamics, or “complex” or “chaotic” systems show sensitive dependence on initial conditions. This means that the data used as inputs in any model, if even trivially different from the “real” values, could potentially lead to huge changes in the behavior that would be predicted by the model. Given the issues with data collection in climate science (placement of temperature sensors, changes in the microenvironment near the sensors, deliberate fudging of data), this is a huge limitation.

But that assumes that we know the appropriate model for the climate in the first place. If we did know the complete model, then in order to accurately predict future climate, we would need to be able to measure present conditions of every variable precisely. Rounding off a single piece of data could result in wildly different predictions. We don’t have the means to precisely measure our environment, and we most likely never will.

The reality is that we don’t know the correct model of the climate. These models are developed by looking at real-world (imprecise) data, and don’t reflect all determinants of the climate. In other words, we are using imprecise data to formulate imprecise models to feed that imprecise data back into. Mathematical modeling is certainly valuable as a tool for comprehending the climate, but it is simply unsuitable for making predictions, which is exactly what the debate over what to do about climate change is about!

Policy makers and the more wonky among us routinely misuse mathematics this way when dealing with chaotic systems, as Ralph Abraham documents in a fascinating paper. Even qualitative predictions are unreliable, making climate forecasts practically useless.

“The interpretation of nearly all dynamical models has to be carried out cautiously due to the likelihood of structural instability. This means that the behavior of the model might change drastically due to a small change in the model. It would be nice if a given model could be simply tested for structural stability, but there is no such test. Thus, the goal of modeling is pedagogic, not predictive in the long term. For example, global climate models cannot tell us how much sea level will rise, nor how long a given rise will take, and not even, if the current rise will be followed by an ice age, or a permanent interglacial climate.

“In summary, we have this conundrum: yes, climate is warming, as it periodically does. Even if this warming tops all prior warmings due to human-produced greenhouse gas emissions, we still cannot predict, on the basis of a mathematical model, whether the climate will stay warm, or rather, cool down again in a new ice age, as it has eight times in the past 650,000 years.”

I don’t doubt that the models that climate scientists have come up with have valuable lessons to teach us. These models can help clarify our understanding of how the climate works and to formulate more hypotheses about it. But there are very real uncertainties regarding these models, which the more honest among AGW supporters will acknowledge. For a look at some of these uncertainties from someone sympathetic to AGW, see this paper. An even better paper written by an AGW supporter describing sources of uncertainty concludes:

“The severity of model inadequacy suggests a more qualitative interpretation than one might wish. In particular, it is not at all clear that weighted combinations of results from today’s complex climate models based on their ability to reproduce a set of observations can provide decision-relevant probabilities. Furthermore, they are liable to be misleading because the conclusions, usually in the form of PDFs [probability density functions], imply much greater confidence than the underlying assumptions justify; we know our current models are inadequate and we know many of the reasons why they are so.”

Even if the weight of the evidence from modeling the climate suggests that AGW is true, this doesn’t imply anything about our ability to predict how much warming we will see or what its effects will be. This means that it is impossible for governments to rationally determine how to respond to climate change.

Politics And Science Don’t Mix

An additional reason to be skeptical of AGW is the institutional framework that much of the relevant research is being conducted in and influenced by. This is largely due to the influence of government funding, but the structure of our scientific institutions is also a factor. The most notorious example (dubbed “Climategate”) can be read about here and here, where pro-AGW insiders at the IPCC were caught manipulating the scientific process to suit their agenda.

Richard Lindzen discusses numerous reasons why climate science today is ill-suited to answer scientific questions. Here are a few:

  • Prominent members of the environmentalist movement hold important positions within scientific administration organizations, despite oftentimes not being scientists themselves.
  • Small executive councils speak on behalf of thousands of scientists who don’t necessarily agree. These councils control access to funding and can sanction those who don’t get in line behind the official opinion.
  • Global warming has become a core issue of political correctness. Questioning the orthodoxy often leads to ostracism.
  • Data is regularly manipulated in order to more adequately fit with models that support the AGW hypothesis. For examples, see this and this.
  • To get published or supported in peer review, many papers are adding irrelevant comments in support of AGW, despite being unrelated to the point of the paper.
  • Climate skeptics are being depicted as having retracted their beliefs on their deathbeds in obituaries, which is a disturbing development.

Environmentalists will manipulate the public into thinking that their information is scientific, even though they are just activist organizations (I wouldn’t be surprised if this is true for some skeptical organizations as well).

“For example, the environmental movement often cloaks its propaganda in scientific garb without the aid of any existing scientific body. One technique is simply to give a name to an environmental advocacy group that will suggest to the public, that the group is a scientific rather than an environmental group. Two obvious examples are the Union of Concerned Scientists and the Woods Hole Research Center. The former conducted an intensive advertising campaign about ten years ago in which they urged people to look to them for authoritative information on global warming.”

Papers that are skeptical of AGW are routinely attacked in unfair ways, creating a double-standard for scientists studying climate change.

“Even in the present unhealthy state of science, papers that are overtly contradictory to the catastrophic warming scenario do get published (though not without generally being substantially watered down during the review process). They are then often subject to the remarkable process of ‘discreditation.’ This process consists in immediately soliciting attack papers that are published quickly as independent articles rather than comments. The importance of this procedure is as follows. Normally such criticisms are published as comments, and the original authors are able to respond immediately following the comment. Both the comment and reply are published together. By publishing the criticism as an article, the reply is published as a correspondence, which is usually delayed by several months, and the critics are permitted an immediate reply. As a rule, the reply of the original authors is ignored in subsequent references.”

In addition, the most highly respected organizations discussing climate change are political bodies rather than scientific ones. These political organizations have their own agendas.

“The charge to the IPCC is not simply to summarize, but rather to provide the science with which to support the negotiating process whose aim is to control greenhouse gas levels. This is a political rather than a scientific charge. That said, the participating scientists have some leeway in which to reasonably describe matters, since the primary document that the public associates with the IPCC is not the extensive report prepared by the scientists, but rather the Summary for Policymakers which is written by an assemblage of representative from governments and NGO’s, with only a small scientific representation.”

Another way in which the scientific deck is stacked in favor of AGW is the influence of government funding. State-funded scientific research tends to corrupt the conclusions. A working paper by David Wojick and Patrick Michaels describes ways in which this corruption might occur. Government funding introduces biases (commercial funding does as well, of course) which can alter results, even without any dishonesty being involved. These biases are then amplified when, for instance, the hype present in a press release is then further exaggerated in the media, often without including the qualifications that the researchers included.

“1) An agency receives biased funding for research from Congress. 2) They issue multiple biased Requests for Proposals (RFPs), and 3) multiple biased projects are selected for each RFP. 4) Many projects produce multiple biased articles, press releases, etc, 5) many of these articles and releases generate multiple biased news stories, and 6) the resulting amplified bias is communicated to the public on a large scale.”

But what are these biases in the first place? Funding for scientific projects is often directed towards research related to an existing policy or developing a specific new policy. In other words, the mission of the funding agency may result in asking the wrong questions.

“In the climate debate an example of this sort of bias might be the heavy funding of carbon cycle research compared to sun-climate research in the USGCRP budget. The government’s policy on climate change is based on the hypothesis that carbon dioxide emissions are the principal driver. That climate change is driven by solar activity is a competing hypothesis.”

Biased peer review of research proposals may lead to rejecting research that doesn’t fit with the reigning paradigm. Similarly, there could be biases in the actual peer review of the articles themselves. Funding agencies may choose reviewers who will be more inclined to favor the government’s interest.

There may be biased preferences for models that support the reigning paradigm or have biased assumptions. Meta-analyses can be biased. For instance, the selection of articles used by the IPCC in their meta-analyses is based on political goals rather than scientific objectivity. Bias can also be introduced from the failure to report negative results.

“Journals are not normally federally funded, but they may well be involved in or sensitive to Federal policies. This is likely to be especially true in the applied fields. An example might be renewable energy research. There is also the case of open access or hybrid journals where author publication charges are paid out of Federal grants.”

Data can be manipulated to bias results (and as mentioned earlier, it often has been). Climate data is routinely adjusted, and seems to be regularly adjusted in ways that support the AGW hypothesis. Similarly, there can be a tendency to refuse to share data with potential critics.

“There are several prominent examples of researchers refusing to share important climate data with skeptics. One of the best known involves the University of East Anglia.”

Federal funding can lead to false confidence in tentative findings.

“A more recent example might be the numerous studies (or reports thereof) which claim to have explained why there has been no statistically significant warming for over two decades. This is sometimes called the problem of the pause, or the hiatus in global warming. Various inconsistent explanations have been offered, so it is likely that most are incorrect, yet each is often presented as though it solved the problem.”

Finally, the importance of findings by researchers and funding agencies is often exaggerated.

“Researcher and agency press releases sometimes claim that results are very important when they merely suggest an important possibility, which may actually turn out to be a dead end. Such claims may tend to bias the science in question, including future funding decisions.”

None of this is to disprove AGW – however, it should be clear by now that there is reason to be critical of the hypothesis. At the very least, we should not just assume that AGW is the case and that “the science is settled.” Some degree of skepticism is warranted.

 

Would Proposed Policies Even Work?

Let’s assume AGW is completely true, and that there will be a significant temperature rise in the next century or so. Most people at this point would say that clearly the government must “do something” to stop global warming. But why should this be the case?

Some scientists think that no matter what we do, it’s too late to stop global warming. Oddly enough, some of them continue to advocate for governments to act; clearly, these people are not economists. If it is too late to stop global warming, then why would we want to destroy industrial civilization? If we’re all going to die fiery deaths anyways, I think I can speak for most people when I say that it would be preferable to do so with the amenities that western civilization has provided.

But let’s say we could stop global warming. Would we even want to? Perhaps rising CO2 levels in the atmosphere might even be beneficial. In fact, global warming has thus far been beneficial to mankind, and it likely will continue to be. Research by Richard Tol, reported on by respected science writer Matt Ridley, suggests that the benefits of global warming thus far have amounted to about 1.4% of global economic output, and that this reflects the scientific consensus of today.

“There are many likely effects of climate change: positive and negative, economic and ecological, humanitarian and financial. And if you aggregate them all, the overall effect is positive today — and likely to stay positive until around 2080. That was the conclusion of Professor Richard Tol of Sussex University after he reviewed 14 different studies of the effects of future climate trends.

To be precise, Prof Tol calculated that climate change would be beneficial up to 2.2˚C of warming from 2009 (when he wrote his paper). This means approximately 3˚C from pre-industrial levels, since about 0.8˚C of warming has happened in the last 150 years. The latest estimates of climate sensitivity suggest that such temperatures may not be reached till the end of the century — if at all. The Intergovernmental Panel on Climate Change, whose reports define the consensis [sic], is sticking to older assumptions, however, which would mean net benefits till about 2080. Either way, it’s a long way off.“

The benefits of global warming include lower energy costs, better agricultural yields, increased biodiversity, fewer droughts, and fewer winter deaths. Research by Indur Goklany corroborates this (it’s a very interesting paper, and I strongly recommend reading it if you are so inclined).

“Carbon dioxide levels have risen inexorably since the 1700s. Yet despite this, climate sensitive indicators of human and environmental wellbeing that carbon dioxide affects directly, such as crop yields, food production, prevalence of hunger, access to cleaner water and biological productivity, and those that it affects indirectly, such as living standards and life expectancies, have improved virtually everywhere. In most areas they have never been higher, nor do they show any sustained signs of reversing.”

To summarize his perspective,

“…the benefits of increasing carbon dioxide have been underestimated, that the risks from increasing carbon dioxide have been overestimated, and that carbon dioxide emission reduction policies will start to reduce the benefits of higher carbon dioxide concentrations immediately, without reducing climate change and its associated costs until much later, if at all.”

If anything, global warming ought to be welcomed, according to the bulk of the research out there.

But let’s say even that is wrong, and that the alarmist position is correct. Let’s assume that AGW is real, it will have negative consequences, and it is theoretically possible to stop it. Shouldn’t government act to stop global warming under these conditions?

Not necessarily. For that to make sense, the benefits of government action must outweigh the costs, and this is an analysis that most environmentalists completely ignore.

William Nordhaus, a leading researcher on the carbon tax, has calculated that the benefits of implementing this tax would outweigh the costs…under certain assumed conditions which are very unlikely to hold. There are reasons to believe that future greenhouse gas concentrations may be overstated, climate sensitivity to GHGs are overstated, and economic damages from a given temperature increase may be overstated. But even Nordhaus calculated that certain climate plans, like that proposed by Al Gore, would have a net loss of over $20 trillion. Yeah, let’s not do that.

Robert Murphy, Patrick Michaels, and Paul Knappenberger make a definitive case against a carbon tax from an economic perspective. Carbon taxes that have been implemented in Australia and British Columbia have not been nearly as successful as proponents claim, both in terms of emission reductions and economic harms.

“Ironically, the latest U.N. Intergovernmental Panel on Climate Change (IPCC) report indicated that a popular climate target cannot be justified in cost/benefit terms. Specifically, in the middle‐of‐the‐road scenarios, the economic compliance costs of limiting global warming to 2 degrees Celsius would likely be higher than the climate change damages that such a cap would avoid. In other words, the U.N.’s own report shows that aggressive emission cutbacks—even if achieved through an “efficient” carbon tax—would probably cause more harm than good.”

Again, the reason the carbon tax doesn’t work out economically is because of many of the assumptions built into the climate models. For instance, choice of parameter values in these models has a huge impact on the results. Reasonable people can disagree on what these parameters should be. For instance, and perhaps most importantly, the discount rate is an economic variable that changes the social cost of carbon (SCC) dramatically.

“To see just how significant some of the apparently innocuous assumptions can be, consider the latest estimates of the SCC put out by the Obama Administration’s Working Group. For an additional ton of emissions in the year 2015, using a 3% discount rate the SCC is $36. However, if we use a 2.5% discount rate, the SCC rises to $56/ton, while a 5% discount rate yields a SCC of only $11/ton. Note that this huge swing in the estimated “social cost” of carbon relies on the same underlying models of climate change and economic growth; the only change is in adjustments of the discount rate which are quite plausible. Indeed, the Administration’s Working Group came under harsh criticism because it ignored explicit OMB guidance to include a 7 percent discount rate in all federal cost/benefit analyses, presumably because the SCC at such a discount rate would be close to $0/ton or even negative.”

And, as argued by Graham Dawson,

“…a carbon tax will be effective only if it is internationally harmonised. Otherwise, firms in high-tax countries will be placed at a competitive disadvantage and might relocate to low-tax countries. This would reduce the effectiveness of the tax, which is intended to reduce carbon intensive activities rather than redistribute them across countries. Unfortunately, the four Scandinavian countries that introduced carbon taxes in the early 1990s ‘have not been able to harmonise their approaches— demonstrating the difficulty of co-ordinating tax policy internationally, even among a relatively small group of countries’. The US policy stance is not sympathetic to taxes, while the developing countries are unwilling to take action because they see climate change as the product of carbon emitted by industrial countries in the past. Harmonising a carbon tax on a global scale is achievable only in the very long term, if at all.”

In other words, not only is a carbon tax ineffective and destructive, but it is politically unfeasible as well. To see just how useless a carbon tax would be, use this calculator to see how minuscule an effect that a massive cut in carbon dioxide output would have on global temperature.

An alternative to a carbon tax is the so-called “cap and trade” scheme, where an emissions target is chosen and then a market in tradeable “pollution rights” is created. But this scheme would be highly regressive, harming the poor for the benefits of special interests.

“The combination of baseline and credit approach and free distribution of permits can have unwelcome effects on the distribution of income. For example, firms such as electricity generators may increase prices in anticipation of receiving insufficient permits and having to purchase extra permits at the predicted market price. If the quota is sufficient to cover actual emissions for most firms, the carbon price (the price of permits) will collapse and the funds raised for purchasing will become windfall profits. The distributive effects on society as a whole are likely to be regressive, with money being redistributed from electricity customers, many of whom will be on low incomes, to shareholders who may be expected on average to be more affluent.”

And, as with the carbon tax, this kind of scheme would require global collaboration on a scale that is inconceivable.

Finally, neither of these proposed policies mean much if the wrong climate “goal” is chosen by policy makers. There can be enormous net costs if policies reduce emissions by too much or too little. If the goal is too drastic, the world will be made massively poorer unnecessarily. If the goal isn’t drastic enough, the economy will be weakened and we might still see runaway global warming and the alleged catastrophes that would result.

There’s got to be a better solution.

 

The Solution To Global Warming

“Although climate change can lead to a deterioration of many human health and environmental metrics, that does not tell us what we really want to know. What we want to know is this: Will human health and environmental quality be better under richer but warmer scenarios than under poorer but cooler scenarios? That’s primarily because wealth creation, human capital, and new or improved technologies often reduce the extent of the human health and environmental “bads” associated with climate change more than temperature increases exacerbate them.” – Indur Goklany

The best way to deal with global warming is to allow economic growth to help humanity adapt. Once again, anarchism and free markets are a viable solution to this environmental problem. Having governments attempt to mitigate global warming, as we have already seen, would be fraught with difficulty, the benefits wouldn’t be noticeable until decades in the future, the costs would be immediate and enormous, and there’s no guarantees that it would even be effective. In fact, mitigation would prevent humanity from reaping the benefits of global warming and increased CO2, whereas adapting will allow us to experience those benefits and selectively reduce the harms.

A fantastic paper written by Indur Goklany in 2008 compares the costs and benefits of mitigation vs adaptation to climate change under assumptions generous to the global warming alarmists. He brings up a crucial point: climate change is hardly the most significant environmental issue of today.

“Data from the WHO…indicates that climate change doesn’t even make the top 10 global health risk factors related to food, nutrition, and environmental and occupational exposure. Specifically, the WHO attributes

  • 1.12 million deaths in 2001 to malaria;
  • 3.24 million deaths to malnutrition;
  • 1.73 million deaths to unsafe water, inadequate sanitation, and hygiene;
  • 1.62 million deaths to indoor air pollution from indoor heating and cooking with wood, coal, and dung; • 0.8 million deaths to urban air pollution; and
  • 0.23 million deaths to lead exposure.

Climate change is clearly not the most important environmental, let alone public health, problem facing the world today.”

Would it not make more sense to address these immediate environmental issues with significant human costs than to address the speculative issues caused by climate change? But even this is too generous to those who would suggest destroying industrial civilization to attempt to save humanity, since addressing environmental problems that are unrelated to climate change would subsequently resolve those same issues when caused by climate change. For example, developing a malaria vaccine would help reduce malaria cases in general, whether they would have been caused by global warming or something else.

In addition, adapting to climate change does not require knowledge of the impact of climate change. This is important considering the massive uncertainties with regards to whatever effects climate change might have.

“Significantly, work on focused adaptation measures can commence, and in some areas has already begun, without detailed knowledge of the impacts of climate change. Cases in point are the development of malaria vaccines, transferable property rights for water resources, development of early warning systems for climate-sensitive events ranging from storms to potential epidemics of various kinds, and elucidation of mechanisms that confer resistance in crops to drought, water logging, or saline soils. To the extent that such measures do not rely on the location-specific details of impacts analyses, focused adaptation reduces the risk of having wasted resources by pouring them into problems that may or may not occur at specific locations.”

As our understanding of global warming improves, we can then work on adapting to the specific threats that we uncover. But in the meantime, there are many ways that we can adapt to the risks that most global warming alarmists expect, all at a drastically lower cost than mitigation.

“…at a cost of less than $34 billion per year (for 2010–2015), focused adaptation would deliver far greater benefits than would even halting climate change. Moreover, it would do so at one fifth the cost of the ineffectual Kyoto Protocol.”

Not bad, huh? Let’s dive into the specifics, including rough costs and the kinds of adaptations that can be developed over the coming years and decades. Malaria:

“The UN Millennium project reports that the global death toll from malaria could be reduced by 75 percent at a cost of $3 billion per year. Adaptations focused on reducing current vulnerabilities to malaria include measures targeted specifically at malaria as well as measures that would generally enhance the capacity to respond to public health problems and deliver public health services more effectively and efficiently. Malaria-specific measures include indoor residual (home) spraying with insecticides, insecticide-treated bed nets, improved case management, more comprehensive antenatal care, and development of safe, effective, and cheap vaccines and therapies.”

Focusing on economic growth and adaptation would also be the appropriate strategy to counter world hunger:

“An additional $5 billion annual investment in agricultural R&D—approximately 15 percent of global funding of agricultural research and development during the 1990s—should raise productivity sufficiently to more than compensate for the estimated 0.02 percent annual shortfall in productivity caused by climate change…Current agricultural problems that could be exacerbated by warming and should be the focus of vulnerability-reduction measures include growing crops in poor climatic or soil conditions (e.g., low-soil moisture in some areas, too much water in others, or soils with high salinity, alkalinity, or acidity). Because of warming, such conditions could become more prevalent and agriculture might have to expand into areas with poorer soils, or both. Actions focused on increasing agricultural productivity under current marginal conditions would alleviate hunger in the future whether or not the climate changes.”

Another common fear is that global warming will cause the sea level to rise and threaten coastal communities with flooding.

“According to estimates in the latest IPCC (2007) report, the annual cost of protecting against a sea level rise of about 0.66 meters in 2100—equivalent to about 0.52 meters in 2085 compared with 0.34 meters under the warmest (A1FI) scenario—would vary from $2.6 to $10 billion during the 21st century. I will assume $10 billion for the purposes of this paper. Governments could, moreover, discourage maladaptation by refusing to subsidize insurance and/or protective measures that allow individuals to offload private risks to the broader public.”

Finally, proponents of AGW fear that global warming will lead to stress on water resources. Yet again, there are free-market ways to adapt to this threat.

“…there are many measures that would help societies cope with present and future water stress regardless of their cause. Among them are institutional reforms to treat water as an economic commodity by allowing market pricing and transferable property rights to water. Such reforms should stimulate widespread adoption of existing but underused conservation technologies and lead to more private-sector investment in R&D, which would reduce the demand for water by all sectors. For example, new or improved crops and techniques for more efficient use of water in agriculture could enhance agricultural productivity. That would provide numerous ancillary benefits, including reductions in the risk of hunger and pressures on freshwater biodiversity while also enhancing the opportunity for other in-stream uses (e.g., recreation). Notably, diversion of water to agricultural uses might be the largest current threat to freshwater biodiversity.”

Goklany’s research found that, even under assumptions very generous to AGW alarmists, humanity would be better off in warmer-but-wealthier scenarios than ones in which we attempt to mitigate global warming.

“If future well-being is measured by per capita income adjusted for welfare losses due to climate change, the surprising conclusion using the Stern Review’s own estimates is that future generations will be better off in the richest but warmest world (A1FI). This suggests that, if protecting future well-being is the objective of public policy, governmental intervention to address climate change ought to be aimed at maximizing wealth creation, not minimizing CO2 emissions.”

And the best way to maximize wealth creation is to let the market do its thing, rather than having significant government intervention. Let’s discuss a few of the ways that market anarchism would address the potential threat of climate change in a far superior way to that of government efforts.

For starters, the government has historically supported and continues to subsidize fossil fuel usage. Gene Callahan writes:

“The U.S. government has subsidized many activities that burn carbon: it has seized land through eminent domain to build highways, funded rural electrification projects, and fought wars to ensure Americans’ access to oil. After World War II it played a key role in the mass exodus of the middle class from urban centers to the suburbs, chiefly through encouraging mortgage lending.”

In addition, the government has gotten in the way of preventing emissions.

“While myriad government policies have thus encouraged carbon emissions, at the same time the government has restricted activities that would have reduced them. For example, there would probably be far more reliance on nuclear power were it not for the overblown regulations of this energy source. For a different example, imagine the reduction in emissions if the government would merely allow market-clearing pricing for the nation’s major roads, thereby eliminating traffic jams! The pollution from vehicles in major urban areas could be drastically cut overnight if the government set tolls to whatever the market could bear—or better yet, sold bridges and highways to private owners.”

In other words, without government, we could have had far fewer emissions than we have thus far, and would likely have fewer in the future as well. Under an anarchist system with private roadways, driving cars that cause pollution would no longer be subsidized.

The anarchist system would also address the issues relating to coastal flooding more directly than government action. Insurers would have to take the threat of global warming into account when setting prices for policies. If the threat of flooding is legitimate, then the areas most threatened would also be the most costly to live, naturally reducing the issue of mass migration that global warming might cause. And since global warming would also make some locations more hospitable, people will naturally migrate from the least hospitable to most hospitable areas.

“Private insurers have a strong incentive to assess the potential effects of global warming without bias in order to price their policies optimally—if they overestimate the risk, they will lose business to lower-priced rivals; if they are too sanguine about the dangers, they will lose money once the claims start rolling in. Individuals finding their homes or businesses threatened by rising sea levels will find it easier to relocate to the extent that unfettered markets have made them wealthier.”

In fact, markets would generally allow a superior way of aggregating information about global warming and how to respond to it through the development of various financial products.

“For example, the financial industry, by creating new securities and derivative markets, could crystallize the “dispersed knowledge” that many different experts held in order to coordinate and mobilize mankind’s total response to global warming. For instance, weather futures can serve to spread the risk of bad weather beyond the local area affected. Perhaps there could arise a market betting on the areas most likely to be permanently flooded. That may seem ghoulish, but by betting on their own area, inhabitants could offset the cost of relocating should the flooding occur.”

This would provide a vastly more fair response to the costs of global warming.

Let’s say that, despite the many reasons to suspect that things will be fine, the global warming alarmists are correct. Then we can use the extra wealth that humanity has accumulated in the next several decades to come up with exotic “geoengineering” solutions to climate change. Maybe we’ll place mirrors in space, fill the atmosphere with aerosols that reflect sunlight, develop technologies to suck carbon out of the atmosphere, or even colonize outer space!

None of this requires government involvement in any way. If AGW is true, then insurance companies in an anarchist system will have a strong incentive to mitigate it or adapt to it – just as described earlier in the “mass collective pollution” section above. In addition, social pressures can effectively address the negative externalities of global warming without resorting to coercion by the state. Large companies and wealthy individuals are rather sensitive to these types of campaigns, as evidenced by the PR successes of the global warming alarmists and the “green” movement today.

What do you think would be better: destroying civilization in the name of what is only an uncertain threat, or continuing to lift billions out of poverty while addressing that threat anyways?

“The alternative offered by the proponents of global warming regulation – pushing much of the developing world back into abject poverty – would be sure to bring something far worse, such as endless civil wars among populations where had a middle-class lifestyle within sight, but was then ripped away by the global elites in the name of saving the world. So, if global warming is indeed on our horizon, it would appear that perfecting technologies like water desalinization, aqueducts, improved agricultural practices, and lowering the costs of basic staples such as housing and labor-saving appliances would be essential. Much of the world has already been working on these problems, and global warming has had nothing to do with it. The Israelis have been developing better and better water and agriculture systems for decades. Many desert countries (including the western United States) have been working on better water filtration and delivery systems. Many societies, such as The Netherlands and Singapore already deal with various issues related to dense populations.”

 

Conclusion

The modern environmentalist movement is almost universally made up of collectivists who support central planning. However, as we have seen, it need not be this way. In fact, people who truly want to protect the environment ought to be supporters of private property, free markets, and anarchy.

Environmental Issues: An Anarchist Perspective, Part 1

We humans live on planet Earth (for the time being), and utilize resources that have existed long before we came around. Many of these resources are scarce – due to their finite supply and importance to our well-being, the way these resources are managed is of highly related to our ability to survive and thrive.

As such, there is a very strong prima facie case for protecting the environment. The modern environmentalist movement considers itself the vanguard attempting to save the environment from greedy, ruthless capitalists, who are more than happy to destroy the environment in the pursuit of profit. To do so, they suggest assorted government policies, ranging from simple regulations to the intentional extermination of billions of humans.

No doubt, the institutional structure that we live under today, with giant corporations protected by big government, has led to significant environmental distress. Nevertheless, the effect of capitalism and market-based economies has been among the greatest boons for environmental protection.

This may at first seem like a contradiction, but in this article, I intend to argue that it is in fact private property rights that, as an institutional structure, are necessary for the protection of our environment. The political system that fully embodies a respect for private property is called “anarchy,” “anarcho-capitalism,” or “voluntaryism.”

As an anarchist, I often hear people object to my beliefs on the basis that pollution would run rampant and the environment would be destroyed if anarchy were put into practice. This is the most common concern people have, second only to how security and law would work in an anarchist society. For some reason, it is very difficult for most people to envision how the environment might survive without the protection of the government. In reality, however, the government is the greatest enemy of the environment, and markets are the most effective way of preventing environmental devastation largely caused by the state and its crony-capitalist cronies.

Since this is an extremely long post (over 22,000 words), I will present a brief outline of the content to follow, which is divided into two separate posts. First, I describe the modern environmentalist movement and the fallacies underlying their dogma, particularly the idea that nature has some kind of “intrinsic value.” Next, I document how governments are far and away the worst polluters on the planet. I then walk through multiple cases in the US where government policies have led to environmental catastrophe, and thoroughly document the extreme environmental destruction that socialism has caused in the world. Then I will present an alternative paradigm: respect for private property rights. I provide some historical background on how the legal climate for environmental issues has changed, and then describe the way that issues surrounding environmental damage ought to be handled. Using this private property paradigm, I discuss numerous environmental issues that could be more easily resolved under anarchy as opposed to resorting to state coercion. In the second post, I describe what is generally considered the biggest and most challenging environmental issue of our time: global warming. I discuss why the narrative surrounding global warming is heavily warped and politicized, why it is valid to be skeptical of the mainstream position, and how global warming could be addressed far more adequately under anarchy than via government.

 

Environmentalism: How Much Does “The Environment” Really Matter?

remember to shower

As alluded to before, environmentalists differ in terms of how extreme their proposals and intentions are. The majority of people who consider themselves environmentalists are moderate – they are outdoorsy-types who want to ensure that there are still green spaces for their children, for instance. But then there are environmental extremists, who think that humanity is a great scourge on this world, and that the planet would be better off without us. They go as far as to recommend the intentional extinction of humanity. In fact, Australian government-funded environmentalist propaganda is telling children that they should die at the age of 9 so that they don’t use more than their “fair share” of resources!

Surely, most of the people reading this are not in the latter category. That being said, both rely on the same fallacy to arrive at their policy conclusions – it’s just that the more extreme take this fallacy further. Modern environmentalists all believe that nature has intrinsic value, a notion that I will soon demonstrate is absurd.

But the alleged intrinsic value of nature is just one tenet of the environmentalist religion. Consider the narrative of environmentalism, which claims that there was an initial Eden, a sacred environment that was pure until humanity destroyed it in a fall from grace. Supposedly, native people lived happy lives in perfect peace with the environment before capitalism came along. Of course, this ignores the terrible record of indigenous people as stewards of the environment, and the horrid conditions in which most of them lived. As the late author Michael Crichton said:

“In short, the romantic view of the natural world as a blissful Eden is only held by people who have no actual experience of nature. People who live in nature are not romantic about it at all. They may hold spiritual beliefs about the world around them, they may have a sense of the unity of nature or the aliveness of all things, but they still kill the animals and uproot the plants in order to eat, to live. If they don’t, they will die.”

And then there are the doomsday predictions that are repeatedly proven wrong. This happens time and again, but like a religious cultist whose doomsday date passed without incident, the environmentalist will just pick a new date and push their prediction further down the line. Consider the mass starvation that was predicted due to population pressures, the resource depletion that always seems right around the corner, and global cooling in the 1970s which has now morphed into global warming. Another example:

“Near the end of the 19th Century…city planners warned of the impending danger of the streets being covered with dozens of feet of horse manure as the population of humans and animals would surely grow in those imperiled cities. The reviled automobile, it turns out, saved us from that horrible fate.”

Ironic, right? But the most important of the tenets of environmentalism is the sacredness of nature, the value that nature possesses in and of itself. But if nature has intrinsic value, what does this imply? It isn’t only humans who act in some way to “harm” nature or the environment, yet it seems only humans are held responsible. As George Reisman argues (emphasis mine):

“The doctrine of intrinsic value is itself only a rationalization for a preexisting hatred of man. It is invoked not because one attaches any actual value to what is alleged to have intrinsic value, but simply to serve as a pretext for denying values to man. For example, caribou feed upon vegetation, wolves eat caribou, and microbes attack wolves. Each of these, the vegetation, the caribou, the wolves, and the microbes, is alleged by the environmentalists to possess intrinsic value. Yet absolutely no course of action is indicated for man. Should man act to protect the intrinsic value of the vegetation from destruction by the caribou? Should he act to protect the intrinsic value of the caribou from destruction by the wolves? Should he act to protect the intrinsic value of the wolves from destruction by the microbes? Even though each of these alleged intrinsic values is at stake, man is not called upon to do anything. When does the doctrine of intrinsic value serve as a guide to what man should do? Only when man comes to attach value to something. Then it is invoked to deny him the value he seeks. For example, the intrinsic value of the vegetation et al. is invoked as a guide to man’s action only when there is something man wants, such as oil, and then, as in the case of Northern Alaska, its invocation serves to stop him from having it. In other words, the doctrine of intrinsic value is nothing but a doctrine of the negation of human values. It is pure nihilism.”

It is often held that man is an agent of destruction of nature, but isn’t man a part of nature? If a beaver is allowed to chop down trees, why should I not be allowed to?

Beyond the nonsense inherent in this doctrine, considering nature to have intrinsic value makes it impossible to rationally guide ourselves with respect to how to treat the environment. How are we supposed to behave if we cannot use nature for our own ends? And if we are allowed to use nature to further goals of man, then – if nature has intrinsic value and we can’t discriminate between various elements of nature – how are we to determine which environment-altering behaviors are kosher and which are not? We live in a world of scarcity, so some means of determining priorities is necessary.

Nature does not have intrinsic value. This doesn’t imply that the natural world doesn’t have value, of course, but rather that its value is related to the ends that nature can be used to achieve. I don’t intend to belabor this point philosophically; I just mean to point out that there is nothing immoral about man manipulating his natural environment to achieve his goals.

In fact, it seems that this is an inevitable result of existing. Humans act in order to achieve desired aims, and we use existing means, including that of the surrounding environment, in order to do so.

Despite this, an environmentalist might argue, it is still in man’s best interest to preserve the natural environment and avoid depleting the resources that we need in order to improve our lives. It’s certainly true that wasting resources is, well, wasteful. At any given moment, it is no doubt the case that there are only so many resources available for human use. But this static view ignores the fact that as human knowledge of the physical world increases (and as capital accumulates, allowing us to take advantage of this knowledge), the amount of resources available for our use increases….arguably, without a practical limit. George Reisman spells this out explicitly:

“And this brings me to what I consider to be the revolutionary view of natural resources that is implied in Menger’s theory of goods. Namely, not only does man create the goods-character of natural resources—by obtaining knowledge of their useful properties and then creating their useability and accessibility by virtue of establishing the necessary command over them—but he also has the ability to go on indefinitely increasing the supply of natural resources possessing goods-character. He enlarges the supply of useable, accessible natural resources—that is, natural resources possessing goods-character—as he expands his knowledge of and physical power over nature.

The prevailing view, that dominates the thinking of the environmentalists and the conservationists, that there is a scarce, precious stock of natural resources that man’s productive activity serves merely to deplete is wrong. Seen in its full context, man’s productive activity serves to enlarge the supply of useable, accessible natural resources by converting a larger, though still tiny, fraction of nature into natural resources possessing goods-character. The essential question concerning natural resources is what fraction of the virtual infinity that is nature does man possess sufficient knowledge concerning and sufficient physical command over to be able to direct it to the satisfaction of his needs. This fraction will always be very small indeed and will always be capable of vastly greater further enlargement.

“Nature presents the earth as an immense solidly packed ball of chemical elements. It has also provided comparably incredible amounts of energy in connection with this mass of chemical elements. If, over and against this massive contribution from nature stands motivated human intelligence—the kind of motivated human intelligence that a free, capitalist society so greatly encourages, with its prospect of earning a substantial personal fortune as the result of almost every significant advance, there can be little doubt as to the outcome: Man will succeed in progressively enlarging the fraction of nature’s contribution that constitutes goods; that is, he will succeed in progressively enlarging the supply of useable, accessible natural resources.”

Consider the many resources we use today that wouldn’t have necessarily been considered resources many years ago. Petroleum wasn’t a natural resource until humanity made it one. The same is true of iron, aluminum, copper, bronze, zinc, gold, silver, and uranium. But even after discovering the goods-character of these resources, advances in technology have allowed us to mine with less effort or at greater depth, find more of the resource where it wasn’t previously visible, access the resource from previously inaccessible locations (offshore oil drilling, for instance), and so on.

The solution to the “problem” of limited resources is to increase the amount of resources, by improving the state of human knowledge and through capital accumulation to allow us to take advantage of this knowledge. Contrast this with the “solution” presented by environmentalists: use less stuff. How about instead of impoverishing us all, we invent ways to adapt to environmental change and the use of resources?

“If we destroy the energy base needed to produce and operate the construction equipment required to build strong, well-made, comfortable houses for hundreds of millions of people, we shall be safer from the wind and rain, the environmental movement alleges, than if we retain and enlarge that energy base. If we destroy our capacity to produce and operate refrigerators and air conditioners, we shall be better protected from hot weather than if we retain and enlarge that capacity, the environmental movement claims. If we destroy our capacity to produce and operate tractors and harvesters, to can and freeze food, to build and operate hospitals and produce medicines, we shall secure our food supply and our health better than if we retain and enlarge that capacity, the environmental movement asserts.”

If global warming is happening, we should develop more and better air conditioners. Instead, the environmentalists would have us destroying industrial civilization, condemning millions or billions to starvation and death.

As alluded to earlier, environmentalists have a habit of catastrophizing the impact of environmental issues, and of ignoring the consequences of their proposed policy fixes.

“Consider, for example, the recent case of Alar, a chemical spray used for many years on apples in order to preserve their color and freshness. Here, it turned out that even if the environmentalists’ claims had actually been true, and the use of Alar would result in 4.2 deaths per million over a seventy-year lifetime, all that would have been signified was that eating apples sprayed with Alar would then have been less dangerous than driving to the supermarket to buy the apples! (Consider: 4.2 deaths per million over a seventy year period means that in any one year in the United States, with its population of roughly two hundred and fifty million people, approximately fifteen deaths would be attributable to Alar! This is the result obtained by multiplying 4.2 per million times 250 million and then dividing by 70. In the same one-year period of time, approximately fifty thousand deaths occur in motor vehicle accidents in the United States, most of them within a few miles of the victims’ homes, and undoubtedly far more than fifteen of them on trips to or from supermarkets.) Nevertheless, a panic ensued, followed by a plunge in the sale of apples, the financial ruin of an untold number of apple growers, and the virtual disappearance of Alar.”

Contrast this with the miracle of the market.

“Famine has been ended, because the industrial civilization so hated by the environmentalists has produced the greatest abundance and variety of food in the history of the world, and created the transportation system required to bring it to everyone. This same hated civilization has produced the iron and steel pipe, and the chemical purification and pumping systems that enable everyone to have instant access to safe drinking water, hot or cold, every minute of the day. It has produced the sewage systems and the automobiles that have removed the filth of human and animal waste from the streets of cities and towns.”

 

Governments Are The Largest Polluters

One of the great ironies of environmentalism is that its proponents’ solutions always seem to involve government action. And yet they routinely ignore the god-awful record that governments have as stewards of the environment.

In fact, the US federal government is the largest polluter on the planet, but state governments are pretty bad too. The US Department of Defense is the largest contributor to this pollution. Military bases, of which there are a gazillion, pollute their locations heavily, which causes serious health issues among soldiers and their families. During wars, the government has leveled forests using chemicals and big machines. The US government is also the 4th largest greenhouse gas emitter in America, trailing only behind energy companies. But the environmental impact of the government goes beyond directly polluting:

“The federal government provides subsidies to many activities through direct transfers as well as through the provision of free or below-cost access. For example, recreational activities in the national forests and parks are heavily subsidized; most users pay low (or no) fees. Such subsidies encourage people to “consume” more of those public resources than they would be likely to in a market system. In addition, subsidies for favored providers of environmental amenities tend to squeeze out private alternatives. Other well-known subsidies that can unintentionally degrade the environment include agricultural subsidies, grazing subsidies, and water and hydropower project subsidies, among others. Unfortunately, the political process finds it almost impossible to deal honestly with the issue of subsidies. Only free markets are able to assess the full costs of resource use. Until property rights-based policies are instituted, environmental issues – from waste disposal to wetlands protection – will be poorly managed.”

There are also massive subsidies to Confined Animal Feeding Operations (CAFOs), which leads to environmental issues with excess manure. The government botches the management of forest fires by letting deadwood accumulate, leading to massive blazes.

Just recently, the EPA, which is supposed to be protecting the environment, dumped millions of gallons of toxic waste into the Animus River in Colorado, which may have been done intentionally for money! Predictably, leading environmentalist groups have been covering for the EPA on this one, even though they vehemently attack private companies for far less.

Some additional examples would be instructive. Take Seattle’s Ravenna Park. It was once privately owned and well-preserved. But the local government was afraid that it wouldn’t continue to be preserved, so they took over and then proceeded to let it fall into disrepair.

“At the turn of the twentieth century it [Ravenna Park] was a privately owned park that contained magnificent Douglas firs. A husband and wife, Mr. and Mrs. W. W. Beck, had developed it into a family recreation area that, in good weather, brought in thousands of people a day. Concern that a future owner might not take proper care of it, however, caused the local government to “preserve” this beautiful place. The owners did not want to part with it, but the city initiated condemnation proceedings and bought the park.

But since they had no personal property or income at stake, local officials allowed the park to deteriorate. In fact, the tall trees began to disappear soon after the city bought it in 1911. A group of concerned citizens brought the theft of the trees to officials’ attention, but the logging continued. Gradually, the park became unattractive. By 1972 it was an ugly, dangerous hangout for drug users. The Becks, operating privately at no cost to taxpayers, but supported instead by user fees, had done a far better job of managing the park they had created.”

The BP Gulf Oil Spill

In April 2010, the Deepwater Horizon oil rig in the Gulf of Mexico began gushing oil into the ocean, and wasn’t successfully capped for 87 days, with about 5 million barrels of oil discharged in total. The company that owned this rig, BP, was trashed by environmentalists and the media in the aftermath of this tragedy. What they ignore is the crucial role of government regulations that made this spill so much more likely. Of course, much of this legislation was likely the result of oil industry lobbying, so the corporate-state nexus is really the blameworthy institution here, not merely the government.

How did regulation help lead to the worst accidental oil spill in history? The Oil Pollution Act of 1990 established a measly $75 million liability cap on oil spills, which created an immense moral hazard by reducing the risk to oil companies while drilling, and reducing their incentive to ensure the safety of their actions. Without a cap like this, oil companies would be responsible for the full cost of the damages that they cause, which would make them far more cautious and safety-prone.

It gets worse. Why was BP drilling in such a deep area to begin with? Wouldn’t it be far safer to drill closer to the surface? Unfortunately, oil companies are often barred from exploring less risky oil-rich areas.

“Because most private lands have been explored, public lands offer the most potential for oil and gas development. However, the NIMBY [“not in my back yard”] principle has significantly restricted development on those lands. According to 2008 Energy Department figures, nearly 80% of potentially oil-rich offshore lands are off limits to oil and gas development, and 60% of onshore lands are.”

You see, politicians don’t like those unsightly oil rigs near their territory, so they explicitly disallow it.

“I’ve seen the total number of platforms estimated at around 4,000, with up to 100 drilling rigs operating at a time. One of the interesting things to me about this map is that it shows no rigs in the eastern part of the Gulf of Mexico. It turns out this is due to a moratorium on drilling first put in place by President Bush in 1990. In 1998, President Clinton extended the moratorium until 2012. So, one government intervention has resulted in a situation in which drilling operations are constrained west of the border between Alabama and Mississippi, with a concentration of drilling off the coast of Louisiana.”

And then there are the federal subsidies (“royalty relief”) for drilling in deep waters rather than water closer to shore. These subsidies result in a five-fold increase in the incentive for companies to drill in deep water rather than shallow water.

It’s not just in America where mismanagement of land and regulation causes issues with oil spills. In Nigeria, for instance, state ownership of oil assets has led to repeated spills.

Love Canal

My favorite example that demonstrates the ineptitude of governments with respect to the environment is the infamous Love Canal fiasco. Investigative reporter Eric Zuesse documented the whole story here, but I’ll provide a summary.

The Love Canal was a site in upstate New York that was owned by Hooker Chemical Co., which they used as a dumping site for toxic chemicals (the Army was also dumping toxic waste at Love Canal, but for some reason people only blame Hooker). The Niagara Falls Board of Education desperately wanted to own this land to build a school on, but Hooker did not want to sell it. Nevertheless, the BoE used their power of eminent domain to threaten Hooker with seizing the land, so it was ultimately sold to the government for one dollar. The sell was done specifically so that there would be a contractual record where Hooker could spell out the dangers of building on this land for all future owners (if the land were seized by eminent domain, Hooker would have been free of liability for the chemicals anyways, so it was with the public good in mind that they sold instead). Hooker made it very clear to the BoE that there were chemicals underground and that no building should take place on that site beyond mere surface construction (like a park). When the BoE tried to sell the site to real estate developers in 1957, Hooker came to those meetings and forcefully advised against it. Ultimately, Niagara Falls ended up building a school on this land anyways, disturbing the chemicals and letting the seep into the community that was soon built there.

“Practically every level of government has been involved over the years in violating either the Canal’s walls or the protective clay cover that Hooker says it had laid four feet thick on top of its wastes. Even the New York State Department of Transportation, which now shares major responsibility for remedial work on the Canal with New York’s Department of Health and the federal Environmental Protection Agency, ripped into the Canal in 1968, at the southern end where Hooker had done most of its dumping. In the construction of an expressway and the moving of Frontier Boulevard northward, chemicals were contacted, and Hooker was requested to, and did, cart away 40 truckloads of chemical wastes. Just as Hooker had worried in 1957, as time passed the possible hazards of construction on the property had been put totally out of mind.”

Such ineptitude! But the narrative about what occurred at Love Canal was that a greedy corporation took advantage of and poisoned a community.

“Despite the popular myth that Love Canal is the result of a single corporation’s greed and heartlessness, the actual explanation is far more complex. It’s clear to anyone who digs into this matter that Hooker may well have been the only party to the affair to behave responsibly. Hooker chose an exceptionally fine chemical dumpsite; it ceded the dump to the School Board under circumstances in which the threat of condemnation was real and the reality of condemnation was already under way for adjoining properties; it warned the School Board that the chemicals could kill and insisted that the Board pass this warning on to any subsequent owner of the property; it urged the Board not to construct the school or any other buildings directly over the Canal; it protested the prospect of any subsurface construction on the Canal.

These warnings were repeatedly ignored, however, by the governmental bodies involved in desecrating this chemical tomb: the School Board itself, the City Planning Board, the city engineer, and the state Department of Transportation. In addition, other governmental agencies have been busy spreading misinformation about the Canal: the Niagara County Health Department, the state Department of Health, the US Environmental Protection Agency, and the US Department of Justice.”

And the icing on the cake is that the EPA has since then positioned private industry as blameworthy and the government as the savior. They need to justify their existence somehow.

Socialism And The Environment

Environmentalists, as I said before, always seem to think that environmental protection requires an expansion of government. If this were true, one might expect that socialist countries would have a sterling record of environmental stewardship, right? Luckily, since the fall of the Soviet Union, we have plenty of case studies to verify that this is not the case.

Before diving into these examples, let’s reflect for a moment on why socialism might prove to be a poor economic system from an environmental perspective. In the Soviet Union and other socialist countries, there were explicit protections for the environment both at the legal and ideological level. However, without a profit motive operating, industrial managers were not sensitive to economic incentives to protect the environment. Ed Dolan describes several ways in which the socialist system leads to economic harm:

“Where there are property rights, there is always an owner to resist trespass, whether by people on foot or noxious chemicals wafting through the air. True, the legal system doesn’t work perfectly. Sometimes owners can’t adequately protect their rights, but the rights are there. Furthermore, where there is widespread ownership of at least small scraps of property, respect for the property rights of others also becomes widespread, although, alas, not universal.”

Private property is central to the reason why markets protect the environment better than government, but there are also political realities that make socialist countries ignore environmental concerns.

“In a socialist system, producers have a stronger grip on the levers of political power. After all, as state enterprises, they are not mere lobbyists—they are themselves a part of the government structure. For example…there were protests in the Soviet Union when paper mills first started dumping waste into Lake Baikal. However, the protesters themselves were always one government institution, say, the Limnological Institute of the Academy of Sciences, working against another, in that case the Ministry of Timber, Paper, and Woodworking. Sometimes the protesters were able to exploit personal rivalries within the government in order to plant articles in government newspapers, but in the end, they always lost. The whole incentive system of the Soviet economy, from the Politburo down to the local plant manager, was focused on just one thing: meeting the impossibly demanding production targets of the Five Year Plan. The environment always lost.”

For a thorough account of why socialism tends to destroy the environment, I recommend reading this paper by Peter Hill (1992). Under socialism, there is no incentive to prevent waste, which leads to excess consumption of resources.

“The general inefficiency of production under socialism is another indicator of the lack of incentives to prevent waste. Czechoslovakia consumes about three times the energy of the average western nation per unit of output. In the former Soviet Republics manufacturing uses four times as much energy per unit of GNP as in the United States. Chemical plants in the Soviet Union for many years emitted large amounts of a potent pollutant, fluorine, into the atmosphere. Despite numerous studies by engineers that showed that the fluorine could be recovered at a profit and sold to other enterprises, the plant managers found it easier to continue to pollute. There was no effective system in place whereby a manager was rewarded for taking such cost reducing and environment improving actions.”

While free markets certainly would not have a perfect record with respect to preventing waste and protecting the environment, they would be far superior to socialist incentives. If the theoretical account of socialism’s environment failings is damning, the real life experience is catastrophic. Thomas DiLorenzo (1992) has done research on this, which I will now draw upon.

Soviet Union

In the Soviet Union (which, again, had extensive legal protections for the environment), central planning proved devastating for the natural world. The Aral and Caspian seas were destroyed, as Soviet authorities diverted water away from them for other projects, and hundreds of factories dumped untreated chemical wastes into them. This sort of industrial prioritization was common.

“A typical example of the environmental damage caused by the Soviet economic system is the exploitation of the Black Sea. To comply with five-year plans for housing and building construction, gravel, sand, and trees around the beaches were used for decades as construction materials. Because there is no private property, “no value is attached to the gravel along the seashore. Since, in effect, it is free, the contractors haul it away. This practice caused massive beach erosion which reduced the Black Sea coast by 50 percent between 1920 and 1960. Eventually, hotels, hospitals, and of all things, a military sanitarium collapsed into the sea as the shoreline gave way. Frequent landslides–as many as 300 per year–have been reported.”

Toxic waste was dumped into rivers and destroyed these ecosystems because there was no private property.

“Effluent from a chemical plant killed almost all the fish in the Oka River in 1965, and similar fish kills have occurred in the Volga, Ob, Yenesei, Ural, and Northern Dvina rivers. Most Russian factories discharge their waste without cleaning it at all. Mines, oil wells, and ships freely dump waste and ballast into any available body of water, since it is all one big (and tragic) “commons.”

“Islands of alkaline sewage have been observed floating on the lake, including one that was 18 miles long and three miles wide. These “islands” have polluted the air around the lake as well as the water in it. Thousands of acres of forest surrounding the lake have been denuded, causing such erosion that dust storms have been reported. So much forest land in the Lake Baikal region has been destroyed that some observers reported shifting sands that link up with the Gobi Desert; there are fears that the desert may sweep into Siberia and destroy the lake.”

Arguably the worst of these cases was the Volga River. So much oil was dumped into this river that smoking had to be banned for sailors on ships traversing it – not for paternalistic health reasons, as in the West, but because throwing spent cigarette butts overboard would cause raging fires.

Of course, let’s not forget the Chernobyl disaster.

“The 1986 Chernobyl nuclear disaster, the world’s worst, caused not just by operating errors but by a reckless design that provided no containment vessel in case of accident. The nuclear accident that had been considered the world’s worst up to that time also occurred in the Soviet Union, the 1957 explosion of a waste storage pond at the Mayak nuclear weapons complex.”

The Soviets also killed at least 45,000 humpback whales between 1946 and 1986. Why? To satisfy obscure line items in five year plans. Barely 30% of these whales were actually used, and the remainder were left to rot.

China

Chinese cities are well-known to have a thick layer of smog covering them.

“The Chinese state’s arrogation of all pollution litigation to its own courts is a clear collectivization of environmental property rights — most notably rights to air and property surfaces, most of which are covered in soot after a few years of operation.

The state’s subsequent, systematic refusal to enforce property owners’ claims against pollution damages to the serviceability of their air and the appearances of their structures’ outward surfaces, then, constitutes a redistribution of these collectivized rights to “dirty” industries and other heavy polluters.”

Massive industrial projects initiated by the socialist government in China also led to serious environmental issues.

“China’s current Three Gorges Dam has displaced over a million people and flooded 13 cities, 140 towns and 1,350 villages. There’s no way the capitalists of Wall Street could compete with that flooding.”

Water pollution is another serious issue:

“An official report showed that 90% of all environmental protests in 2012 were linked to water pollution. It found that 57.3% of the groundwater in 198 cities in 2012 was ‘bad’ or ‘extremely bad’. One third of rivers and 75% of lakes are seriously polluted, and around 1,000 lakes have disappeared. Unsafe drinking water is being used by 320 million people, and 190 million are sick every year due to water pollution.”

Central planning has led to massive environmental destruction of forests and waterways in China.

“According to the Worldwatch Institute, more than 90 percent of the trees in the pine forests in China’s Sichuan province have died because of air pollution. In Chungking, the biggest city in southwest China, a 4, 500-acre forest has been reduced by half. Acid rain has reportedly caused massive crop losses.

There also have been reports of waterworks and landfill projects severely hampering fish migration. Fish breeding was so seriously neglected that fish has largely vanished from the national diet. Depletion of government-owned forests has turned them into deserts, and millions of acres of grazing and farm land in the northern Chinese plains were made alkaline and unproductive during the “Great Leap Forward.””

Poland

The Polish people under communism did not fare much better.

“According to the Polish Academy of Sciences, “a third of the nation’s 38 million people live in areas of ecological disaster.” In the heavily industrialized Katowice region of Poland, the people suffer 15 percent more circulatory disease, 30 percent more tumors, and 47 percent more respiratory disease than other Poles. Physicians and scientists believe pollution is a major contributor to these health problems.

“Half of Poland’s cities, including Warsaw, don’t even treat their wastes, and 41 animal species have reportedly become extinct in Poland in recent years. While health statistics are spotty — they were not a priority of the Communist government–available data are alarming. A recent study of the Katowice region found that 21 percent of the children up to 4 years old are sick almost constantly, while 41 percent of the children under 6 have serious health problems.”

Coal mining caused major issues because property rights were not respected, and the health of the land did not need to be taken into account by the socialist planners.

“Continuous pumping of water from coal mines has caused so much land to subside that over 300,000 apartments were destroyed as buildings collapsed. The mine sludge has been pumped into rivers and streams along with untreated sewage which has made 95 percent of the water unfit for human consumption. More than 65 percent of the nation’s water is even unfit for industrial use because it is so toxic that it would destroy heavy metals used by industry.”

Czechoslovakia

Here’s a summary of the environmental devastation that occurred in communist Czechoslovakia:

“Because of the overuse of fertilizers, farmland in some areas of Czechoslovakia is toxic to more than one foot in depth. In Bohemia, in northwestern Czechoslovakia, hills stand bare because their vegetation has died in air so foul it can be tasted. One report describes the Czech countryside as a place where “barren plateaus stretch for miles, studded with the stumps and skeletons of pine trees. Under the snow lie thousands of acres of poisoned ground, where for centuries thick forests had grown.” There is a stretch of over 350 miles where more than 300,000 acres of forest have disappeared and the remaining trees are dying. A thick, brown haze hangs over much of northern Czechoslovakia for about eight months of the year. Sometimes it takes on the sting of tear gas, according to local officials. There are environmental laws, but they aren’t enforced. Sulfur in the air has been reported at 20 times the permissible level. Soil in some regions is so acidic that aluminum trapped in the clay is released. Scientists discovered that the aluminum has poisoned groundwater, killing tree and plant roots and filtering into the drinking water.”

East Germany

East Germany is a classic case of socialism, and particularly, the issues that socialism has wrought for the environment. Note that West Germany did not have nearly so egregious exploitation of the environment.

“Much of the East German landscape has been devastated. Fifteen to 20 percent of its forests are dead, and another 40 percent are said to be dying. Between 1960 and 1980 at least 70 villages were destroyed and their inhabitants uprooted by the government, which wanted to mine high-sulfur brown coal. The countryside is now “pitted with moon-like craters” and “laced with the remains of what were once spruce and pine trees, nestled amid clouds of rancid smog.” The air in some cities is so polluted that residents use their car headlights during the day, and visitors have been known to vomit from breathing the air.

Nearly identical problems exist in Bulgaria, Hungary, Romania, and Yugoslavia.

Visiting scientists have concluded that pollution in Central and Eastern Europe “is more dangerous and widespread than anything they have seen in the Western industrial nations.””

Colin Grabow adds:

“An estimated 44 percent of East German forests were damaged by acid rain — little surprise given that the country produced proportionally more sulphur dioxide, carbon dioxide, and coal dust than any other in the world. In some areas of East Germany the level of air pollution was between eight and twelve times greater than that found in West Germany, and 40 percent of East Germany’s population lived in conditions that would have justified a smog warning across the border. Only one power station in East Germany had the necessary equipment to clean sulphur from emissions.”

Even the greatest excesses of the Western world and capitalism can’t compare with the extreme environmental devastation brought on by socialism. So why do environmentalists continue to promote big government policies? And why are so many environmentalists also socialists?

 

Private Property As A Solution

“[Those] who wonder what all the fuss is about when environmentalists raise alarms about the effects of acid rain on the forests react with outrage when the neighbour’s dog performs squatus smellibus on their own front lawns. It may be said that this is different—after all, the front lawn is private property— but this is precisely the point.

If the same dog-owning neighbour happens to own an industrial plant that dumps a chemical effluent on some remote forest land, we have little reaction, even if we know about it. After all, the forest land isn’t our private property. It’s government land. The question is, how do we ensure that the protective reactions of private property ownership will leap to the aid of the forest in the same way that they protect front lawns? The answer is that as long as we persist in the myth of public ownership, it will be very difficult.” – Walter Block

The United States doesn’t have a great record as an environmental steward, and many environmentalists will seize upon this to argue that privatization and free markets are to blame. Environmental costs of business are externalities – companies that pollute are not required to pay the cost of their pollution, so the pollution is subsidized.

Without a doubt, this is true today. However, it was not always like this in America. There used to be legal ways to internalize those externalities and to make polluters responsible for the damage they caused. This was the case when private property rights were more respected and legally protected in America, a reality that changed in the mid-1800s. Walter Block discusses the old system:

“Up to the 1820s and 1830s, the legal jurisprudence in Great Britain and the U.S. was more or less predicated upon the libertarian vision of non-invasiveness. Typically, a farmer would complain that a railroad engine had emitted sparks which set ablaze his haystacks or other crops. Or a woman would accuse a factory of sending airborne pollutants to her property, which would dirty her clean laundry hanging on a clothesline. Or someone would object to the foreign matter imposed in one’s lungs without permission. Almost invariably, the courts would take cognizance of this violation of plaintiff’s rights. The usual result during this epoch was injunctive relief, plus an award of damages.”

This respect for private property had positive effects from an environmental standpoint. In fact, these positive effects are essentially the flip-side of the negative impact of socialism.

“First of all, there was an incentive to use clean burning, but slightly more expensive anthracite coal rather than the cheaper but dirtier high sulfur content variety; less risk of lawsuits. Second, it paid to install scrubbers, and other techniques for reducing pollution output. Third there was an impetus to engage in research and development of new and better methods for the internalization of externalities: keeping one’s pollutants to oneself. Fourth, there was a movement toward the use better chimneys and other smoke prevention devices. Fifth, an incipient forensic pollution industry was in the process of being developed. Sixth, the locational decisions of manufacturing firms was intimately effected. The law implied that it would be more profitable to establish a plant in an area with very few people, or none at all; setting up shop in a residential area, for example, would subject the firm to debilitating lawsuits.”

Clearly, these incentives would lead to far superior environmental outcomes. Unfortunately, the legal climate in America soon changed.

“But then in the 1840s and 1850s a new legal philosophy took hold. No longer were private property rights upheld. Now, there was an even more important consideration: the public good. And of what did the public good consist in this new dispensation? The growth and progress of the U.S. economy. Toward this end it was decided that the jurisprudence of the 1820s and 1830s was a needless indulgence. Accordingly, when an environmental plaintiff came to court under this new system, he was given short shrift. He was told, in effect, that of course his private property rights were being violated; but that this was entirely proper, since there is something even more important than selfish, individualistic property rights. And this was the “public good” of encouraging manufacturing.”

Since then, America has never turned back. Legal protections for victims of pollution have not been reinstated, and unfortunately, it doesn’t look like they will be anytime soon. Nevertheless, a regime of private property rights that includes consistent enforcement is the solution to the environmental problem. Environmentalists, unfortunately, do not have a good understanding of how private property rights work, as evidenced by their rhetoric surrounding environmental issues:

“Even when the term “rights” is employed by ecologists in what is seemingly its more traditional, negative sense, as, for example, when environmentalists write of “the right to live free from pollutants” it is often so used without any regard to the context in which these rights are situated. When one refers to “the right to a smoke-free environment,” as numerous spokesmen of the anti-smoking campaign often do, surely it makes sense to ask “of just whose environment are we speaking?” While I might indeed have such a right to demand of others that they not smoke on my property, have I the same right when it comes to the property of others? But even put in such bald form, the majority of environmentalists would argue that, in most cases, I would indeed have such a right. Such rights obtain, they argue (and in this they are by no means alone), because most private property is not, in reality, private at all, since members of the public (either all members of the public, as is the case with, say, a department store, or certain specific members of the public, as is the case with a business office) are invited onto the property. By virtue of this fact, nominal private property is transmuted into commonly owned property, the disposal of which can justifiably be determined by political means. Indeed, most environmentalists have extended this notion of public ownership to the whole of the natural world. They write of the “common heritage of all humanity” and of “sharing the world’s resources equitably.” It is as if each of us, when born, inherits our pro rata share of all the wealth of the world, the land and the oceans of the earth, and all that is on, above, or below it, without regard to the prevailing ownership of these resources.”

Because today’s system is so far removed from a system of private property rights, thinking about environmental issues this way requires a paradigm shift. Instead of thinking about pollution as a crime against “the environment,” we need to think of it as a conflict between human beings.

“Pollution is…not about harming the environment but about human conflict over the use of physical resources. Generally formulated, a pollution or environmental problem arises when individual or group A and individual or group B are simultaneously attempting or planning to use resource X for conflicting purposes. Unless emissions into the air, discharge into a river, or the extraction of fish from the ocean give rise to such a conflict then there is no economic, i.e., efficiency problem. Humans cannot harm the environment. Instead, they can change the environment in such a way that it harms others who might be planning to use it for conflicting purposes.”

Conflict, in this sense, is essentially a dispute over the rights to use a given resource. The conflict arises when peoples’ plans regarding the use of resources differ. This requires well-defined property rights in order to determine the proper solution.

“In a setting where rights are clearly defined and strictly enforced, plans may conflict but the resolution to that conflict is embedded in the exchange process. In other words, conflict may arise at the planning stages but is resolved before the actors proceed with implementation of those plans. For example, persons A and B may have conflicting plans with respect to resource X, but if ownership to X is clearly defined as being in the hands of A, B, or a third party C, then there will not be a conflict over the actual use of X. It will be understood by A or B that before proceeding with their plan they must gain rights to X.”

In this paradigm, pollution issues take on a very different character than they do in today’s system. Ray Cordato describes a hypothetical conflict and resolution in this way:

“There is a conflict over the use of a resource. The source of that conflict is the generation of a production byproduct that crosses from property that is owned and controlled by the generator of the byproduct to property that is owned and therefore should be controlled by a nonconsenting party. The responsibility for ending the conflict lies with the polluter who should be responsible for truly internalizing the costs of the conflict generating activity. In this case, internalizing the costs of the pollution does not simply mean facing a new supply curve that has shifted to the left by the right amount. For the polluter it instead means eliminating the costs of his polluting activities to those whose property usage is being curtailed. This might be done by eliminating the emissions, confining them to his own property, or by compensating the victims of the polluting activity by an amount that fully addresses the grievance.”

Obviously, this new paradigm requires some kind of legal system. By far, the best explication of libertarian legal theory with respect to environmental issues comes from Murray Rothbard’s brilliant paper “Law, Property Rights, and Air Pollution.” If you are interested in this, I suggest reading that essay in full, but I will provide the most important insights here. The most fundamental aspect of this legal system is a commitment to nonviolent interaction.

“No action should be considered illicit or illegal unless it invades, or aggresses against, the person or just property of another. Only invasive actions should be declared illegal, and combated with the full power of the law. The invasion must be concrete and physical. There are degrees of seriousness of such invasion, and hence, different proper degrees of restitution or punishment.”

Note that the key thing here is not whether or not someone is “harmed” by a given action, but rather that a physical invasion happened. In other words, I have no legal claim against you if you call me names or offend me, but I would have a claim if you, say, punched me in the face.

“Legal and political theory have committed much mischief by failing to pinpoint physical invasion as the only human action that should be illegal and that justifies the use of physical violence to combat it. The vague concept of “harm” is substituted for the precise one of physical violence…Jim is courting Susan and is just about to win her hand in marriage, when suddenly Bob appears on the scene and wins her away. Surely Bob has done great “harm” to Jim. Once a nonphysical-invasion sense of harm is adopted, almost any outlaw act might be justified. Should Jim be able to “enjoin” Bob’s very existence?”

An obvious prerequisite for determining whether a physical invasion has occurred is to establish who owns what. Rothbard’s solution is the application of Lockean homesteading principles to determine ownership, and the homesteader can establish an easement of pollution rights for the surrounding area. This is best demonstrated through an example.

“Suppose…that an airport is established with a great deal of empty land around it. The airport exudes a noise level of, say, X decibels, with the sound waves traveling over the empty land. A housing development then buys land near the airport. Some time later, the homeowners sue the airport for excessive noise interfering with the use and quiet enjoyment of the houses.

Excessive noise can be considered a form of aggression but in this case the airport has already homesteaded X decibels worth of noise. By its prior claim, the airport now “owns the right” to emit X decibels of noise in the surrounding area. In legal terms, we can then say that the airport, through homesteading, has earned an easement right to creating X decibels of noise. This homesteaded easement is an example of the ancient legal concept of “prescription,” in which a certain activity earns a prescriptive property right to the person engaging in the action.

On the other hand, if the airport starts to increase noise levels, then the homeowners could sue or enjoin the airport from its noise aggression for the extra decibels, which had not been homesteaded. Of course if a new airport is built and begins to send out noise of X decibels onto the existing surrounding homes, the airport becomes fully liable for the noise invasion.”

The next question this leads to is how much of a resource becomes owned when someone is the first user. How would this be determined?

“If A uses a certain amount of a resource, how much of that resource is to accrue to his ownership? Our answer is that he owns the technological unit of the resource. The size of that unit depends on the type of good or resource in question, and must be determined by judges, juries, or arbitrators who are expert in the particular resource or industry in question. If resource X is owned by A, then A must own enough of it so as to include necessary appurtenances. For example, in the courts’ determination of radio frequency ownership in the 1920s, the extent of ownership depended on the technological unit of the radio wave — its width on the electromagnetic spectrum so that another wave would not interfere with the signal, and its length over space. The ownership of the frequency then was determined by width, length, and location.”

In other words, there is no cut and dry answer. This is the kind of thing that needs to be determined by relevant case law and by experts. Expectations set by custom will play an important role here. For specifics regarding the establishment of a legal order under anarchy, see my earlier post on the subject. With or without government, disputes will arise and can be settled via arbitration, and pollution lawsuits (and other environmental damage issues) would be considered torts.

“Air pollution is a private nuisance generated from one person’s landed property onto another and is an invasion of the airspace appurtenant to land and, often, of the person of the landowner. Basic to libertarian theory of property rights is the concept of homesteading, in which the first occupier and user of a resource thereby makes it his property. Therefore, where a “polluter” has come first to the pollution and has preceded the landowner in emitting air pollution or excessive noise onto empty land, he has thereby homesteaded a pollution or excessive noise easement. Such an easement becomes his legitimate property right rather than that of the later, adjacent landowner. Air pollution, then, is not a tort but only the ineluctable right of the polluter if he is simply acting on a homestead easement. But where there is no easement and air pollution is evident to the senses, pollution is a tort per se because it interferes with the possession and use of another’s air. Boundary crossing — say by radio waves or low-level radiation — cannot be considered aggression because it does not interfere with the owner’s use or enjoyment of his person or property. Only if such a boundary crossing commits provable harm — according to principles of strict causality and beyond a reasonable doubt — can it be considered a tort and subject to liability and injunction.”

Rothbard summarizes the conditions necessary for a pollution-related claim to be considered a violation of property rights:

“We have established that everyone may do as he wishes provided he does not initiate an overt act of aggression against the person or property of anyone else. Anyone who initiates such aggression must be strictly liable for damages against the victim, even if the action is “reasonable” or accidental. Finally, such aggression may take the form of pollution of someone else’s air, including his owned effective airspace, injury against his person, or a nuisance interfering with his possession or use of his land.

This is the case, provided that:

  1. the polluter has not previously established a homestead easement;

  2. while visible pollutants or noxious odors are per se aggression, in the case of invisible and insensible pollutants the plaintiff must prove actual harm;

  3. the burden of proof of such aggression rests upon the plaintiff;

  4. the plaintiff must prove strict causality from the actions of the defendant to the victimization of the plaintiff;

  5. the plaintiff must prove such causality and aggression beyond a reasonable doubt; and

  6. there is no vicarious liability, but only liability for those who actually commit the deed.”

 

Environmental Problems and Private Property Solutions

plastic bags are beautiful

This is all actually quite simple and obvious, but is not the way pollution claims work in court today. Polluters are unfairly given legal sanction to harm others. When the law no longer considers private property rights sacrosanct, even public-spirited factory owners have a difficult time protecting the environment. By implementing expensive technologies or processes that would reduce pollution, they create a more expensive product that has a harder time competing on the market.

Consider the issue of waste management. Because the government controls waste management, for instance, it is unclear how to act in the most environmentally friendly way. As Walter Block argues in his essay “Environmental Problems, Private Property Rights Solutions”,

“We cannot calculate the economic cost to society of disposing of a non-biodegradable diaper because government has perverted market signals through its programme of ownership and management of waste disposal. Nor can we calculate the ecological cost of washing dirty cloth diapers or recycling plastic ones. Given the absence of the relevant markets, we certainly cannot compare these costs, whether financial or ecological, but no less is required to determine which of these items, cloth or disposable diapers, is the least harmful to the environment.”

Mark Pennington elaborates on and generalizes this concept.

“Suppose that an individual is altruistically motivated as a concerned citizen to reduce his water consumption to a “socially responsible” amount. In the absence of property rights and market prices for water, the individual has no way to ascertain how much to adjust his consumption to take the interests of others properly into account….even the most altruistically inclined person faced with this situation is likely to consume as much water as he personally requires because at least he knows what that amount is, whereas the “socially responsible” amount of consumption is shrouded in a fog of ignorance. Such problems will be multiplied many times over, of course, when the choice is between the vast array of production and consumption possibilities that make up an advanced economy and the complex environmental consequences of these possibilities. In short, without the information provided by market-generated relative prices, citizens will find it impossible to communicate their values to one another and to adjust their behavior accordingly.”

In order to make sound judgments regarding the use of resources, we need a market-generated price system. With the government controlling environmental policy in a centralized way, solutions to environmental problems are less likely to be found. A decentralized, dispersed system with private property rights and which provides freedom to go against the majority opinion will find solutions that a government simply cannot.

“As Michael Polanyi has shown, the spread of knowledge in markets, the arts, and academia does not proceed by collective deliberation, but rather advances best when individuals and groups have a private sphere that secures the freedom to experiment with projects that do not conform to majority opinions. Then, as a result, the prevailing wisdom changes incrementally over time. With regard to “green” consumption, for example, it is doubtful whether the massive growth in the organic food market that has occurred in recent years would ever have developed if production decisions in the agricultural sector had been subject to collectivist procedures. For years, organic food was viewed as the concern of hapless eccentrics. Precisely because private property affords minorities the space to try out experimental ideas (the merits of which may be indiscernible) rather than simply talking about them, more and more people are now able to emulate such role models as the benefits become more visible.”

The market system may be imperfect, but it provides the best opportunity to resolve those imperfections. Governments suffer from the same kinds of issues with externalities and transaction costs as markets do with respect to environmental protection, but at least the market provides clear-cut incentives to fix or reduce those problems.

“Although proponents of free-market environmentalism recognize that environmental markets have limits owing to the prevalence of transaction costs, they contend that these problems are more likely to be overcome within an institutional framework supportive of private contractual arrangements. In this perspective, all environmental externalities represent potential profit opportunities for entrepreneurs who can devise ways of defining private-property rights and arranging contracts (via technological innovations, for example) so that those currently free riding on collective goods or imposing negative external effects (for example, water pollution) on their neighbors are required to bear the full costs of their actions. A land owner, for example, may introduce fences and install entrance points to the grounds of a park in order to exclude nonpayers from the park’s aesthetic benefits. Likewise, if technologies develop in the future that enable the “fencing” of the atmosphere, then entrepreneurs will have incentives to define property rights to the air and to charge those who are currently polluting without compensating those injured by their action. In the market economy, therefore, if people are imposing costs on others or are benefiting from the provision of certain goods without payment, entrepreneurs have incentives to find ways of eliminating such involuntary transfers over time.”

Let’s consider another example, oil spills, which I briefly discussed in an earlier section on the state’s failure to protect the environment. Changing the regulatory structure (reducing subsidies for deep sea drilling, ending limited liability for oil companies, etc.) would go a long way towards reducing the risk of oil spills. Additionally, privatizing the oceans would create an incentive for owners to use their ocean property responsibly, unlike the unowned state of oceans today. Walter Block explains:

“If people owned various patches of the ocean, they would have an economic incentive to protect their holdings. For example, they might well insist that any ship passing through their property with a cargo of oil be double-hulled. Additionally, they would have more of a selfish interest not only in demanding that inebriated sailors be prohibited access to their property but in actually ensuring that this policy is enforced.”

Of course, there are some difficulties with privatizing the oceans. The technology to implement this effectively might not exist yet. But that’s the thing: until the ocean is privatized, there will be no incentive for entrepreneurs to tackle these problems. Perhaps someone can implement some sort of EZ Pass buoy system to delineate property lines and charge ships passing through.

Now, let’s talk about how pollution might be handled in an anarchist society. Stefan Molyneux has a good discussion of this problem here. In his account, there are companies (“Dispute Resolution Organizations” or DROs) that play the role of crime insurance. I heavily elaborate on the concept here.

Let’s say Sally owns land that she wants to convert into a factory, and there are a group of homeowners downwind, including Ahmed. Naturally, any concerned homeowners will purchase pollution insurance from their DRO. Ahmed takes out a policy that will pay him $2 million if a certain predefined type of and amount of pollution is found on his property.

When Sally begins preparations to build her factory, Ahmed’s DRO takes notice – if this factory is going to cause pollution, they might be on the hook for $2 million in claims! The DRO can spend some amount less than $2 million to either buy up Sally’s land and sell it to a non-polluter or get legal assurances from Sally that she will not pollute. If the DRO succeeds, great! If not, they have a $2 million budget to encourage Sally to install chemical scrubbers or other technologies that may reduce the pollution to a low enough level. Now, if this isn’t good enough to solve the issue, the DRO will pay Ahmed his $2 million, which he can use to move to a less polluted neighborhood if he so chooses. And it likely won’t just be Ahmed; we could be talking about vastly higher sums of money as hundreds or thousands of individuals get pollution insurance.

Similarly, Sally, fearing potential pollution claims against her, will need a DRO to represent her and reduce her risk. Her DRO won’t like her polluting activities, since that opens them up to significant claims payouts from pollution damages downwind. Chances are good that she won’t even be able to contract for services with a reputable DRO unless she can prove that pollution activities will be below a certain threshold. And without a DRO backing her, it is highly doubtful that she’ll be able to get the capital to build and maintain her factory anyways!

What about a situation where the pollution is more complicated?

“Imagine that Sally’s smokestacks are so high that her air pollution sails over Achmed’s house and lands on Reginald’s house, a hundred miles away. Reginald then complains to his DRO that his property is being damaged. His DRO will examine the air contents and wind currents, then trace the pollution back to its source and resolve the dispute with Sally’s DRO. If the air pollution is particularly complicated, then Reginald’s DRO will place non-volatile compounds into Sally’s smokestacks and follow them to where they land. This can be used in a situation where a number of different factories may be contributing pollutants.”

And again, as private property rights are reestablished, the incentive to develop these kinds of compounds and other solutions to problems of this nature increases.

Before moving on to a couple of the larger applications of the private property solution to environmental issues, I’d like to again contrast market solutions with that of government. Consider certain massive government (or government sponsored) projects, including the interstate highways, airports, stadiums, railways, etc. Under a regime of private property and anarchy, then each of these environmentally destructive projects would have required the consent of all landowners in order to be built, making them far less likely. But the state can simply use eminent domain to seize the land, and then subsidize its development. Can you imagine how much less pollution there would be today if the interstate highway system didn’t exist (at least not in its current form)?

Conservation And The Tragedy of The Commons

When governments attempt to solve environmental issues, the solutions are at best temporary. The government can always change its mind, and is particularly likely to do so in the face of moneyed interests. Any pro-conservation bill is liable to be overturned. What the government provides, it can also take away. Private property provides a solution to this problem.

“The environment in the United States does not stand a chance for long term preservation in its current direction. If a group of people can democratically decide what to do with the land you are trying to save, then the land is not protected. The reality is that the land “preserved” is actually just a lease from the government. The earth is “secure” until the whims of rulers find a better use than appeasing a few disgruntled environmentalist voters.

“A simple question for environmentalists using political action: “If the price of gas goes up to $5/gallon, what are you going to do in order to convince a voter making $8/hour at Wal-Mart to vote in favor of preserving caribou over drilling for oil?”

“Environmentalism is based entirely on thinking about the future of the planet. In the present, supporters do the exact opposite. Their policies are temporary patch jobs at best without consideration that the same country that voted for preservation this time can change its mind. Political action conservationists showing the benefits of their lobbying are exercising a performative contradiction. They are attempting to solve the problems of the long term by only considering the short term.”

Political realities are likely to preclude any environmental policy from being truly successful over longer time scales. But private property rights can resolve conservation related issues for the long term. Environmental groups such as the Sierra Club can buy up tracts of land that they believe require some kind of protection, and then can own and administer that land forever. The Land Trust Alliance, for instance, has already been doing this. If you want land (or some endangered species on that land) protected, who would you trust more: a fickle government or a group of dedicated environmentalists?

There is a well-known issue related to land and resource conservation dubbed “the tragedy of the commons.” When a resource is collectively owned, it tends to be depleted much more quickly because there is no incentive to preserve the resource if someone else will simply take advantage of what you fail to harvest. If a forest is collectively owned, everyone has an incentive to log as quickly as possible before everyone else does the same. Quickly, the forest ends up destroyed. If the forest were privately owned, however, the owner would have every incentive to maximize the present value of his property by logging in a sustainable way, which would leave him a source of income for years to come.

Robert Smith studied this issue, and provides examples of the tragedy of the commons. Consider the wild eider, the bird that produces the most valuable down in the world.

“Iceland’s management of the wild eider as a private property resource has been a great success. The private eider farms have benefited both the property owners and the eider population. The farmers have protected the birds from overexploitation, from poachers, and from natural predators. They have also created artificial nesting sites in which the female will nest. The combined provision of protected nesting areas and artificial nesting sites has served to maintain a thriving population.

“If the eider had been treated as a common property resource, the only way the Icelanders could have captured any economic value from the resource would have been to take all they could before other users did the same. It would not have been profitable to wait for the eider to line their nests with down; someone else might have collected it first. The rational course of action for each user would have been to kill the eider and immediately appropriate all of the down. It also would not have been in anyone’s self-interest to invest in conservation programs, such as nest site construction or predator control. All of the other down collectors would have benefited from the actions of the conservationist.”

This principle seems obvious, yet in America, there are a huge number of national parks that continue to fall victim to the tragedy of the commons.

“Many of the most beautiful national parks are suffering from severe overuse and a near destruction of their recreational values, but most private parks are maintained in far better condition. The National Audubon Society does a better job of preserving its wildlife refuges and protecting wildlife than do many federal wildlife refuges. The public grazing lands have been repeatedly over-grazed, while lush private grazing lands are maintained by private ranchers. National forests are carelessly logged and overharvested, but private forests are carefully managed and cut on a sustained-yield basis, and costly nursery tree farms have been developed. In addition, the basic concept of self-interest explains why people don’t litter their own yards but do litter public parks and streets, and why people don’t dump old refrigerators and tires in their own farm ponds or swimming pools, but repeatedly dump them in the unowned streams, rivers, and swamps.” (emphasis mine)

To protect and preserve wildlife would be as easy as privatizing the land that this wildlife lives on. In some cases, environmental groups can purchase the land and leave it exactly as it is, but they can also charge fees for people to go into these parks and view the scenery. Some might do this ideologically as a form of charity, but others may protect the environment because it is good business.

One highly controversial example of conservation-based businesses would be game ranches or hunting preserves. Environmentalists don’t like them because….well, I’m not sure exactly. Something about profits being evil. Nevertheless, they work.

“Another example of how private ownership can successfully preserve wildlife is found on game ranches, hunting preserves, safari parks, and animal and bird farms…Many of the animals they stock are rapidly disappearing in their native countries because of pressures resulting from a rapidly expanding human population. Native habitats are disappearing through the encroachment of agriculture, cattle grazing, timber harvesting, and desertification arising from overexploitation of common property water resources, overgrazing of grasslands, and overutilization of brush, scrub, and trees for firewood and shelter. So serious are these problems and so insoluble under a common property system that there is little hope of saving many species of wildlife in the developing countries. Indeed, some of the more spectacular and most sought-after big-game mammals may now have healthier and more stable populations on some of the game ranches than in their native countries.

“If the profits gained by giving hunters access to exotic game can provide the economic incentive for these landowners to manage the animals on a sustained-yield basis, some species will be saved. The same holds for the profits to be derived from visitors to game parks and preserves. In fact, the protection provided at some of the parks, preserves, and gardens has actually produced a glut of some animals. There have been well-publicized efforts by some preserves to return their surplus animals to Africa, Lions from America have even been taken to Africa to appear in movies that were filmed there. While we read of zoological parks attempting to discover reversible birth control techniques in order to control their tiger populations, we continue to read about the never-ending difficulties of preserving the remaining tigers in the wild.”

In some cases, species were discovered living only on private land and have been rescued because of this. In addition, privately owned animals in captive breeding programs can reduce potential pressures on wild populations.

“The familiar budgerigar, or budgie, is commonly kept as a pet in the United States and is bred in enormous numbers by thousands of breeders. Practically the entire trade is supplied by captive-bred birds. This demonstrates another conservation aspect of extending private property rights to wildlife, as captive breeding can supply the market demand for the birds and reduce or eliminate the demand on wild populations.”

As much as limousine liberals and environmentalists bloviate about the environmental horrors of private property and their moral outrage (outrage!) that animals can be hunted for profit, the system obviously works better than anything they’ve come up with. And it’s not as though private conservation needs to be done out of a desire for profit – surely, in an anarchist society, environmental protection organizations could work together to preserve wildlife for its own sake.

“Under private property ownership, others were prevented from exploiting the resource, and there were incentives for the owners to preserve them. Furthermore, these incentives were not solely motivated by the possibility of economic gain. With the exception of game ranches, economic gain has seldom been the primary motivation behind most captive breeding projects. Many of these examples were fostered for the pleasure of owning and breeding attractive or rare wildlife, as well as for more “altruistic” reasons, such as a deep commitment to the preservation of vanishing wildlife. Private ownership includes not only hunting preserves, commercial bird breeders, parrot jungles, and safari parks, it also includes wildlife sanctuaries, Audubon Society refuges, World Wildlife Fund preserves, and a multitude of private, nonprofit conservation and preservation projects.”

But what is important here is that private conservation efforts could be done without appealing to any particular environmental values – it would just be good business. Surely, people would be willing to pay to go on a safari and watch three lions and a leopard compete over a dead impala. Commercializing trade in certain animals or animal parts (or hunting them) will lead to an increase in animal farms which will breed more and more of these endangered species. And of course, private game reserves do everything they can to stop poachers. Having rare and difficult to replace animals killed does not serve their business interests. Contrast this with national parks, where this incentive no longer exists. In fact, there is a stronger incentive for park rangers to get involved with poaching themselves for personal gain!

Consider the recent uproar over the hunting and killing of the beloved Cecil the Lion. Cecil was a huge attraction to the park he lived in, and was not supposed to be killed – it was an illegal poaching group that set up the hunt. But the outrage over this hunt has led to various airlines disallowing hunting trophies to be flown back to the US or EU, and activists working to ban or restrict hunting. This approach is completely backwards – and can be contrasted with a legitimate hunt.

“American Corey Knowlton paid $350,000 for a permit to hunt a black rhino in Namibia under the auspices of the Dallas Safari Club back in January 2014. Black rhinos are critically endangered, and Knowlton received death threats after the permit auction, but the details of his hunt are likely to win over all but the most ardent hunting opponents.

For starters, the money will go to fight poaching. (That’s right: this pay-to-play hunt will help fund efforts to prevent exactly the kind of crappy practices used by Palmer’s team) The permit from the Namibian government authorized only the killing of one of 18 elderly male black rhinos, which are actually considered a net negative for overall species survival, since they are past their breeding years but remain territorial and are therefore a threat to the younger males. Knowlton and his well-vetted team whittled that list to just four animals and were obsessively carefully about finding the right rhino to kill.”

Clearly, this type of hunt could be a huge boon to conservation efforts. A great example of private property protecting endangered species where government action failed is with the American bison. Originally, the bison lived on territory that white people had not ventured into yet, and the population of Native Americans was too small to reduce their numbers significantly. But as white people started closing in on this land, the bison was subject to the tragedy of the commons, as the property was considered unowned. The US government forced Native Americans off of this land and into “reservations”, slaughtering the bison in the process of waging scorched-earth warfare. Eventually, the government tried to save the species, did a crappy job, and private individuals had to save the bison from extinction with their “greed”.

“Although Idaho, Texas, New Mexico and other states passed laws similar to the Endangered Species Act, they often failed to do so before it was too late and the buffalo were already gone. In 1872 Yellowstone National Park was opened as a safe haven, but poaching still remained a substantial problem. Henry Yount, remembered for his time at Yellowstone as the first national park ranger, resigned after only 14 months on the job because he knew his efforts alone were hopeless.

Thankfully for the bison, Charles Goodnight, James McKay, William and Charles Alloway, as well as a host of other private ranchers began to scoop up wild buffalo throughout the 1860s and 70’s. From 1884 to 1902, the bison population in Yellowstone actually decreased from 25 to 23, but also by 1902, an estimated 700 were privately owned. This trend has continued for more than a century, as by the 1990s the ratio was 25,000 publicly-owned to 250,000 privately-owned bison.”

The principle of private property as a solution to the tragedy of the commons and environmental issues affects not just animals but other kinds of resources as well. Private ownership is why there is no shortage of trees in the American south, and yet there are tree shortages in the west, where the forests are publicly owned. Similarly, a functioning free market in water would solve the shortage that has recently plagued Californians.

Mass Collective Pollution

A slightly trickier problem is that of mass pollution. A classic example of this would be climate change, which will be addressed in the next section. More generally, I define mass pollution as the kind where an individual contributor does not have any appreciable impact on the pollution that is occurring, but there are negative externalities created by the collective pollution of each contributor. For instance, each car driver contributes a negligible amount to the smog in an urban area, but that smog still exists and has a negative effect. How can free market anarchism address this kind of issue?

Let’s start by noting that the most obvious example of this kind of pollution, that which comes from cars, is heavily subsidized by government (publicly owned/built roads, etc.). The government can reduce this kind of pollution via regulation, but markets can provide this kind of regulation in an even more responsive way, which I will demonstrate in a moment.

Legally speaking, collective pollution like this is a different problem from the torts described in other pollution cases. With mass pollution, it is impossible to prove that a specific defendant directly aggressed against a particular plaintiff. This means that a simple appeal to respecting private property does not as clearly resolve this issue.

But that doesn’t mean there are no free market solutions to the problem of mass collective pollution! Mass pollution can lead to specific real risks – risks which can be insured against. For instance, the pollution from cars may increase the risk of asthma. People can insure themselves against the risk of developing asthma, and then insurance companies will have to pay out claims when this occurs. This gives the insurers an incentive to reduce the pollution that increases their liabilities.

Let’s say that insurers that are giving policies to people in a given geographic area expect to pay out $100 million in claims for asthma cases due to pollution (they have the incentive to study issues like this and come to that conclusion). These insurance companies then collectively have an interest in reducing pollution and could spend up to $99 million on these efforts while still coming out ahead. That money can go towards research on exhaust filters, alternative energy sources, etc. They can pay local car dealerships to implement these pollution reducing technologies. They can implement technologies that reduce pollution in an area – maybe there are ways to suck the smog out of the air. And if not, there is certainly a strong incentive to develop them; insurers could invest in companies hoping to solve this problem. Where there are problems to be solved, there is money to be made.

In addition, insurers would be able to charge those directly responsible for pollution – say, car manufacturers, drivers, road owners, etc. – in order to help internalize the externality.

On top of this, there are always social pressures. Stefan Molyneux provides an example of how this could work:

“Let’s say that for some reason DROs didn’t care about the rising costs of air pollution. The first thing I would do is start a Clean Air Company, which would, for a fee, guarantee air quality in certain neighborhoods. How would I achieve this lofty end? Simple: emotional advertising and social pressure. First, I would start running ads showing kids and grandmothers keeling over from asthma. Then I would offer bright yellow “clean air” stickers to anyone who signed up for my program – and for cars which met certain low-pollution guidelines. That way, anyone in a neighborhood who didn’t sign up for my clean air program would be highly visible – all their neighbors would know, and social pressure would do the rest.”

The combination of these incentives would help an anarchist society reach an optimal level of collective pollution. Make no mistake – zero pollution is not optimal, as it would completely destroy industrial civilization. But pollution can be reduced significantly this way, because the incentives in an anarchist system would be properly aligned.

 

For a discussion of global warming, continue on to part 2.

Bitcoin: The Ultimate Guerrilla Guide

 

Bitcoin symbol

Bitcoin…

There’s a good chance you’ve heard of it by now. Maybe one of your friends has been calling it “the most revolutionary technology since the Internet.” Or “buttcoin.” Or just a fad. Or a horrible thing used to do illegal stuff.

I’d like to clarify what Bitcoin is, why people believe it is a big friggin deal, and how to get started using it.

In this post you’ll learn:

  • How Bitcoin works
  • Why Bitcoin is the coolest thing since the Internet
  • Bitcoin myths
  • How to get your first bitcoin

Before diving into the meat of this post, it will be helpful to have an understanding of what Bitcoin is and how it works.

 

What Is Bitcoin?

Put simply, Bitcoin is a payment system, or a means of transferring value. The technology was proposed by an individual or group of developers under the pseudonym Satoshi Nakamoto in 2008 (read the white paper that originally described Bitcoin here), and implemented in 2009

Question: We already have payment systems – credit card processors, PayPal, the ACH system, the SWIFT system, and newcomers like Apple Pay, Venmo, and so on. Why and how is bitcoin special??

To answer this question, it helps to know how Bitcoin works. The Bitcoin protocol is a peer-to-peer network of nodes where transactions are verified by “miners” and then recorded in a distributed ledger called the “blockchain”. Yes, I know this sounds complicated, but in practice it’s simple.

As a peer to peer network, Bitcoin does not rely on a central authority to work properly. If I want to pay you with a credit card, there must be an entity that will actually process that transaction. With Bitcoin, there is no one corporation, government, bank, or server that must process it. That means there is no entity or “gatekeeper” that can cheat you or screw up when you are trying to hold or transfer value.

If there is no central authority that processes transactions on the Bitcoin network, then who or what does? This is where the miners come in. The non-technical explanation is that these miners compete with each other to solve very difficult math problems. The solution to these math problems supplies the “proof-of-work” necessary to say that a transaction has been verified. This adds a new “block” of transactions to the blockchain. For supplying this computing power, the miner is rewarded with newly created bitcoins. This is the cryptographic equivalent of mining gold or any other resource. Instead of using machines to dig into the ground, separate the resource from the useless stuff around it, and bring it to surface, bitcoin miners use machines to solve these math problems.

The blockchain is a ledger of all transactions that have ever happened on the Bitcoin network. Transaction details are stored in a block, and each block connected to the previous one in a chain that stretches back to the creation of the first bitcoin. But unlike your average ledger, the blockchain is distributed over, copied to, and maintained by thousands of nodes (instances of the software that are downloaded and running) that are operated independently. If you destroy my copy of it, the blockchain will continue to exist. If you try to change it, you will need to muster more computer power than the rest of the network, which is not easy.

Because of the way Bitcoin works, it has many unique advantages as a currency and payment system. Here are four main ones::

  • Low fees. Credit cards charge 2-3% per transaction, and remittance services like Western Union often charge 10% or more to move money around. Many Bitcoin transactions are free, and nearly all of them cost under 40 cents.
  • Irreversible transactions. Once you send bitcoin to somebody else, the transaction cannot be undone. This eliminates a lot of fraud and chargeback risks, which cost merchants almost $200 billion in 2009.
  • Limited supply. There will only ever be 21 million bitcoin, and they are being created on a set schedule known in advance. This means that the value of bitcoin compared to fiat (government created, unbacked) currencies is inclined to increase over time. It also means that you need not worry about inflation, which is endemic to fiat currencies.
  • Pseudonymity. Bitcoin is the most transparent payment system in existence. All relevant information is stored on the blockchain and can’t be tampered with, so it is easier to create more accountable systems off of it. But because it is pseudonymous, it also offers privacy benefits that legacy payment systems don’t have. If you use a credit card to pay for something, you surrender information that can easily be used to identify you (and possibly steal your identity or money). If you send bitcoin, you do not run this risk.

 

Why Bitcoin Technology Will Change Everything

what people think about bitcoin

Many people will compare Bitcoin to the Internet in the early 1990s. Early adopters considered the internet revolutionary, but most people didn’t have an adequate answer to that most important question: so what?

My dad recently told me that in the early days of computers the most vocal defenders of the technology predicted they would be used to store recipes and manage checkbooks. Perhaps the applications of Bitcoin may far surpass even what its proponents claim.

And as with the Internet, there is a ridiculous amount of venture capital being thrown into Bitcoin and blockchain startups. A whopping $314.7 million was invested in Bitcoin startups in 2014, which is three times more than the previous year. In 2015, we’ve already seen Coinbase rake in $75 million, and 21 Inc get $116 million (see this for a list of VC funding rounds).

This money is going towards building a maturer Bitcoin ecosystem. These companies are creating services that make Bitcoin easier to use, more secure, and more awesome. They are creating some of the applications that will enable us to do spectacular things on top of the blockchain.

Note: Not everything described in this section is happening specifically with Bitcoin, but all of this was made possible by technological advances initiated by Bitcoin.

The Underbanked and the Overbanked

Before getting into the revolutionary applications of this new technology, I’d like to give another reason why you should fully expect (and root for!) Bitcoin to keep growing.

Over half of the world’s adult population, or 2.5 billion people, do not have a bank account. These are primarily poor people in poor countries. Mobile phones, however, are far more widespread. This is how the innovative payment system, M-Pesa, has taken off in Kenya in just a couple years: it basically turns your phone into a wallet. Bitcoin should appeal to the same underbanked demographic, but is both cheaper and not dependent on a single entity that must be trusted. It also isn’t liable to the delays, fraud, and chargeback risks that M-Pesa is subject to.

While people in the third world may benefit the most from Bitcoin, millennials are another large group that seems poised to adopt and use it. According to a recent survey by Goldman Sachs, 33% of millennials don’t expect to need a bank in five years, and only half said they expect to use cash on a weekly basis by 2020. Another GS survey had 22% of millennials saying they already use bitcoin and would use it again, plus an additional 22% that hasn’t used it but intends to. There is a deep distrust of traditional banking and financial institutions, and using bitcoin lets people “be their own bank.” It is transparent, with no hidden fees, doesn’t require giving up tons of personal info, and doesn’t come with the limitations and capital controls of standard banking.

Remittances And International Payments

Probably the most obvious sector that Bitcoin is poised to disrupt is remittances, or migrant workers sending money back to people in their home country. According to the World Bank, global remittances topped $580 billion in 2014, so this is big money.

The average remittance fee paid is over 8%, and can be as high as 20%! Contrast this with the cost of sending bitcoin, which is generally somewhere between free or practically free. In fact, someone moved $150 million in bitcoin, and didn’t pay a transaction fee at all!

As a related benefit, the ease of sending money across state borders makes bitcoin ideal for charity aid work in emergencies, such as the recent earthquake in Nepal.

Identity Management and Trust

The blockchain is effectively immutable. As a result, it completely changes the dynamic of trust in society. Instead of trusting governments, corporations, and other third party entities, we can trust the mathematics that powers the blockchain. Distributed ledgers like the Bitcoin blockchain allow us to record things and know for sure that they are correct.

You can already have your identity verified on the blockchain and use it to gain access to websites, and soon enough you’ll be able to use that identity to unlock the doors of your house. You can think of this as essentially an impossible to forge key to the things you want to keep secured. Username and password combinations can be hacked or stolen, and keys can be spoofed and copied, but a blockchain ID cannot be faked.

This might not sound super exciting, but things change when you consider how many of the things we do that rely on trusting others, and how the blockchain can make that friction disappear. All the websites you log into, all the traveling you do, all the property you own, all the domain names you register or visit, all the bars you enter – all of these things could be handled instantaneously, cheaply, and with no risk of identity theft.

Honduras, a nation plagued with costly land disputes, is already beginning to experiment with managing their land registry on the Bitcoin blockchain. This could have massive ramifications for reducing corruption (officials could easily change the land registry and give themselves some prime beachfront property) and its effects on the poor by giving them recourse in land disputes.

There are all sorts of other services that the blockchain’s enhanced identity management can provide, including better medical record management for increased privacy and transparency on product supply chains.

Micropayments

What I find most exciting about bitcoin is that it allows for micropayments. Because bitcoin transactions involve trivial fees (and because a bitcoin is divided into 10 million units, called “Satoshis”), it is suddenly possible to transfer tiny amounts of money efficiently.

This may not sound all that impressive, but the implications are enormous. What if social networks and email systems wouldn’t accept incoming messages unless a tiny amount of bitcoin was included with it? The price would be trivial to the sender, but would deter spammers who can send a gazillion messages today for free.

Something that is already catching on is tipping. If you thought someone made a brilliant post on Reddit, you could send them $5, or $1, or a few cents’ worth of bitcoin. Or you can tip a particularly nice customer service rep, the guy who let you turn at that tough intersection, or anyone else you’d like to thank.

Micropayments could also change the way content monetization works, making it much easier for content producers to make money without relying on large advertisers. Marc Andreessen, a major figure in the Bitcoin community, writes:

One reason media businesses such as newspapers struggle to charge for content is because they need to charge either all (pay the entire subscription fee for all the content) or nothing (which then results in all those terrible banner ads everywhere on the web). All of a sudden, with Bitcoin, there is an economically viable way to charge arbitrarily small amounts of money per article, or per section, or per hour, or per video play, or per archive access, or per news alert.

This may help make the media more objective by reducing the influence of large advertisers.

Another  area where bitcoin micropayments could be revolutionary is in integrating with the Internet of Things, or the trend where all sorts of electronics and appliances are being connected to the Internet. What if you could use a smart meter that gave you real-time access to the sensor that measures energy usage and allowed you to only pay for exactly what you use? What if you could connect to a Wi-Fi network for just the few minutes you need and pay for that miniscule amount?

Startup 21 Inc is working on making that a reality. They have developed a bitcoin mining chip that can be included in most devices, which will turn spare power from wall sockets into bitcoin, which can then be spent on things like extra bandwidth and ad-free access to things.

Smart Contracts

Things start getting really wild once you consider the ramifications of smart contracts: programmable contracts that automatically execute when their conditions are met. In other words, smart contracts are like any other computer program – except that they can interact with real-world assets.

How might this look? Let me borrow an example from Jay Cassano’s great article on smart contracts:

Imagine if allocating your assets after your death was as simple as moving an adjustable slider that determines who gets how much…once the smart contract can verify the triggering condition—in this case, your death—the contract goes into effect and your assets are divvied up.

When combined with the Internet of Things, smart contracts look even more interesting.

Let’s say all the locks are Internet-enabled and they’ve all got network connections. When you make a bitcoin transaction for the rent, the smart contract you and I agreed to automatically unlocks the house for you. You just go in using keys stored on your smartphone.

In this way, smart contracts could help poor people get better access to legal services. For those who cannot afford lawyers, smart contracts could be a great boon.

There are an infinite number of applications for this. Almost anything where a lawyer or accountant would be necessary can be done automatically on the blockchain.

Smart contracts can also allow you to “be your own Kickstarter” and run a decentralized crowdfunding campaign. Backers can send their bitcoin into escrow, and they will be released to you when you hit your goal, or returned if you do not. This practically nullifies the idea of public goods – goods where nonpayers cannot be excluded from its benefits – via technology!

Finally, the blockchain allows for decentralized governance and voting. This could allow for provably fair democratic elections (political or otherwise). Different rules could be written in a fully transparent way (certain people get a higher stake, for instance), and the result of the election can be automatically enforced via smart contract.

Polling and surveys can easily be done and the data won’t get fudged. Corporate governance can be done transparently (shareholders electing the board of directors, for instance). Stakeholders in any given decision can vote on how to proceed, with the decision executing automatically with no funny business. An example of this is the Dash cryptocurrency, where large stakeholders get to vote on what new features should be developed, and funding is automatically released to the developers to work on them.

The political, social, and economic ramifications are enormous.

The Libertarian/Political Angle

There is a perception that bitcoin is a toy for white male libertarians. There are strong reasons why a libertarian would support bitcoin, but some on the left also favor bitcoin for its political implications.

Before diving into how bitcoin may radically alter political relations, I’d like to emphasize that there is nothing inherently political about bitcoin.

Nevertheless, bitcoin is a cypherpunk or crypto-anarchist’s wet dream. It has the potential to disrupt modern power structures in ways that are difficult for most to even comprehend.

The most obvious thing Bitcoin does is take power away from the elite central bankers by returning control of the money supply to the people. The Federal Reserve and other central banks have monopoly powers that grant them the privilege of debasing currencies at will, which is done to promote warfare and militarism, leading to inflation. Bitcoin can destroy this most important lever of control.

Similarly, bitcoin and other cryptocurrencies are resistant to capital controls, a feature that has been giving bitcoin some attention recently because of events in Greece, where the government is defaulting on its loans. The Greek government’s heavy-handed response included closing the banks for several weeks, making it illegal to move money out of the country, and imposing a 60 euro daily limit on ATM withdrawals. Bitcoin makes it harder for law enforcement and the tax man to steal people’s money, prevent transactions (think Silk Road), or apply sanctions against other states or individuals.

It also creates new and immutable ways of preventing censorship. Decentralized, peer-to-peer communication technologies are already being built on the blockchain. For instance, there is Twister, which is basically Twitter – except that third parties can’t access the data, you can communicate in a private and encrypted way, and it cannot be shut down by governments or other malicious actors. A similar project worth following is Synereo, which provides vastly more privacy than Facebook. These are just two of several applications making communication “NSA-proof”. Bitcoin may even enable efficient “homomorphic encryption,” which would let people share data on the cloud without it ever being unencrypted and vulnerable.

The blockchain can benefit free speech in other ways; it can be used to create a historical record that cannot be manipulated by the powers that be. And it can be used to fund dissident organizations – it was bitcoin donations that kept WikiLeaks alive when all other payment processors boycotted them.

By now, it should be obvious that Bitcoin is an incredible boon for women, minorities, the poor, and the persecuted, and yet it is still popular to view bitcoin as a plaything for white patriarchy. This view is dangerously misguided. Bitcoin has yet to catch on with much of the black community, but it would help marginalized African-Americans secure easier access to loans, microloans, and financial services in general, allowing black neighborhoods to better support themselves. Bitcoin has already empowered tens of thousands of women in the developing world, where women are often excluded from the financial system entirely. And soon enough, smart contracts will improve legal access for those who wouldn’t normally have much recourse to the justice system. Without central control, everyone has equal access, so people won’t be able to be excluded due to racism, sexism, ageism, or any other –ism.

The best part is that this process is nearly unstoppable. Soon there will be trusted, decentralized cryptocurrency exchanges built on the blockchain, which will make it impossible to prevent people from buying into bitcoin and other cryptocurrencies. A small example of this already exists with Multigateway.

Banning Bitcoin

There will also be decentralized markets, where individuals can meet in a secure, peer-to-peer environment to buy and sell whatever they wish – and unlike the Silk Road, the infamous online drug market taken down by the FBI in 2013, a decentralized market can’t be shut down. Well known projects in this space include OpenBazaar and the NXT FreeMarket, but there are several others.

Once decentralized exchanges and markets begin to take off, it will be literally impossible to stop the spread of crypto-anarchy short of a nuclear war or worldwide EMP blast.

As these technologies expand, it will become increasingly obvious to a growing segment of the population that there is no need for governments or traditional nation-states; society can be organized in a more voluntary, peaceful manner. In my opinion, this could lead to a rapid decline in the state as an institution, leaving behind a decentralized, voluntaryist world. As Nozomi Hayase wrote:

Bitcoin is the world’s first stateless currency that transcends borders in a similar way as the Internet. Its unmediated flow delivers more power to the periphery. As a result it could dissolve the hegemony of U.S. empire and end the monarchy of the petrodollar that controls flows of oil, finance and global geopolitics. This could potentially shrink the wealth gap between the Global South and the North. For the first time in history, humanity has the option to really heal the wound of long history of brutal colonization; to end major wars, transform poverty and inequality and move toward a more humane world. Humanity has a chance to embark on a new path, where technology of Western society is used to serve for the wisdom of indigenous cultures and together create a new civilization.

 

Doesn’t Bitcoin Get Hacked All The Time?

A common concern when dealing with bitcoin is that of security. If I had a Satoshi for every time I’ve heard that “Bitcoin has been hacked!!!1!1!” I would probably have a bit by now (sorry, bitcoin humor).

This is understandable, given the high-profile thefts from places like Mt. Gox and Bitstamp. But what is important is that these are third party services that have been hacked, NOT Bitcoin itself. In fact, in the six years that Bitcoin has existed, it has never been hacked. For anyone who works with software at all, this is ridiculously impressive. With each passing day, it becomes less and less likely that there is some “fatal flaw” in the Bitcoin protocol. By comparison, at least 527 banks have failed since 2008.

And when exchanges and other services become more decentralized, much of the issue of security becomes moot – without a centralized exchange, there is no target for hackers.

That said,, there are potential weaknesses in the Bitcoin protocol. Most are not serious, but one in particular, the 51% attack, deserves mention. If an attacker controls the majority of the network’s computing power, he will gain the ability to potentially double-spend transactions and deny other transactions from being confirmed by the network. While technically possible, this attack is highly unlikely, and does not give the attacker that much power. It would be a bad thing, but it is not an existential threat to Bitcoin.

Another empty critique of note is that, Bitcoin is bad for the environment and unsustainable. On the contrary, emissions from Bitcoin network are a miniscule fraction of current payment systems.

And finally, there are hundreds of other cryptocurrencies (“altcoins”) that work in different ways or rely on different codebases to Bitcoin. If there does happen to be some kind of “fatal flaw” with Bitcoin, one or many of these altcoins could be used instead.

In a nutshell: cryptocurrency is secure and here to stay.

Securing Your Bitcoin: Best Practices

All Bitcoin users should be conscious of how to keep their own bitcoin secure. If your bitcoin are stolen, I don’t think you’ll feel any better knowing that it was due to your ignorance rather than the Bitcoin protocol itself.

The bitcoin you own is stored in what is called a wallet, and is defined by a secret number called the private key. Whoever controls this key controls your bitcoin. The aim of securing your bitcoin is to make it as difficult as possible for a malicious actor to access to this private key.

There are different wallets you can have, each with unique security ramifications. In a moment, I will recommend an online wallet, but the bulk of your bitcoin should be stored offline. Numerous exchanges have been hacked, so leaving your bitcoin there is risky. Online wallets are convenient, but leave the control of your private key in a third party’s hands – that means a hacker, malicious employee, or government subpoena could get access to it. If you use an online wallet, make sure you use a strong password (ideally 20+ randomly generated characters) and 2-factor authentication.

For privacy and security, you’ll also want a local wallet on your phone or computer. If they are stolen, your house burns down, or your hard drive crashes, you’ll want to have backups of your local wallets. Have extra backups on USB keys, CDs, or hard drives. You should encrypt your wallet with a strong passphrase, and keep all your software up to date.

Here are a few more ways to keep your bitcoin secure:

  • Keep your coins in cold storage. You can keep your “savings account” that you don’t plan to use offline, away from the malware and hackers of the Internet. See guides on how to do this here and here.
  • Hardware wallets will cost you some money ($30-$200), but they turn your wallets into bitcoin fortresses. Malware can’t be installed on them, and some have their own keypads for you to enter your passphrases in case there are keyloggers or screen reading malware on your computer.
  • A “brainwallet” essentially lets you secure your bitcoin in your mind. You have to memorize a (strong!) passphrase, and this passphrase can generate your public and private keys via strong cryptographic protocols. Use a method such as Diceware to create your passphrase – DO NOT come up with it yourself. Seriously, I can’t emphasize this enough: if you create your passphrase yourself, it will be terrible, and your bitcoin WILL be stolen. If you set up your brainwallet properly, the only attack vector that could succeed is if someone put a gun to your head and forced you to reveal the passphrase. To counter this, create a decoy brainwallet with a smaller bitcoin balance that you are willing to give up in this situation. Instructions on how to create a brainwallet are here. This method is only recommended for advanced users.
  • A paper wallet stores bitcoin offline as a physical document, safe from hackers. It’s like a brainwallet, but instead of protecting a passphrase, you protect a document. Here are instructions on how to create a secure a paper wallet, and this page contains more paper wallet security tips and offers a way to do so.
  • Multi-signature transactions are a more “advanced” security feature. These can require more than one person to sign off on a transaction before it begins. For instance, you could specify that both the husband and wife must sign off on the transaction, but neither party can disburse funds individually. A little more technical info on multi-signature can be found in this article.

 

Bitcoin and Anonymity

Bitcoin is NOT anonymous. It is pseudonymous – the activity of a particular Bitcoin address can be tracked precisely on the blockchain, but finding the real identity corresponding to that address is complex but can be done fairly easily if you know how.

For general identity protection, I strongly suggest you use a different bitcoin address for every transaction (your wallet should let you do this). In addition, it’s a good idea to use different wallets for different purposes. You can have a more anonymous wallet to hide from your soon-to-be-ex-wife’s divorce lawyer, and then a less anonymous one for everyday transactions.

If you want to anonymize some bitcoin, you can use a service called a “mixer” which will hold deposits from you and others, and then send you different coins than the ones you put in. It’s basically cryptographic money laundering. Even better, by avoiding exchanges and using certain other services, you can acquire bitcoin anonymously in the first place, usually for a premium. If you really want to remain anonymous while using bitcoin, read through this guide.

 

Getting Started With Bitcoin

There are so many ways to get started with Bitcoin, and I think this leads to “analysis paralysis” for potential new bitcoiners. There are dozens of different wallets out there with different features, and numerous exchanges off of which you can buy bitcoin.

It is worth your time to educate yourself on these matters. My recommendation is to get started using the easiest method possible, and then begin incorporating other wallets, exchanges, and even other cryptocurrencies into your portfolio. The quickest way to get bitcoin securely is via a web wallet, such as Coinbase.

(Disclaimer: I am a former Coinbase employee.)

You should think of your Coinbase account as your “on ramp” to the Bitcoin universe. You can use them both as a wallet (send, receive, and store bitcoin) as well as an exchange (buy and sell bitcoin). Here’s how:

  1. To get started, go here. As of the date of publication of this post, Coinbase is running a referral program such that if you sign up for an account from the link I provided and then convert $100 into bitcoin, we each receive a $10 bonus in bitcoin.
  2. You will need to verify an email address, a phone number, and link a bank account before you can buy or sell bitcoin. If you have difficulty verifying your bank account, check out this guide.
  3. Once your bank account is verified, you’ll be able to place your first purchase at this page. It normally takes 4 business days for the buy order to complete, but you can verify a credit card to enable instant purchases.

If you have any troubles with this process, check the support page to see if your question has been answered.

It really is that simple to get started. At this point, you should start exploring the more “advanced” things you can do. For instance, if you are particularly security conscious, Coinbase offers a multisig vault so that you don’t need to trust anyone else to control your bitcoin. If Coinbase is ever offline or goes out of business, you can use this open-source tool to recover your bitcoin from the multisig vault. In addition, ALL users should have 2-factor authentication enabled to secure their account further.

I’ve focused on Coinbase, but there are plenty of other wallet providers and exchange services. You should learn about these alternatives as well, and ultimately split your bitcoin balance up into multiple wallets. I suggest reading this guide for more basic information on getting started with Bitcoin, and bitcoin.org has many trusted resources.

Not sure what to do with your new bitcoin? Go create an account with Purse, and then get 20% discounts on anything you buy off of Amazon when you use bitcoin. I’ve saved hundreds of dollars this way.

 

Where Can You Learn More?

The world of Bitcoin is massive and growing. Although this post was long, it was only just an introduction.

If this article has intrigued you, I recommend you do some research on your own. Besides the mountains of information on the Internet, there are a few books I would recommend for learning more:

Given the likelihood of Bitcoin radically changing the world as we know it, you would be doing yourself a favor by educating yourself about it and by getting involved.

A Modest Proposal To End Dating Anarchy And Regulate The Dating Market

Dating is cool

Dating and sex, as the means to procreate, are our biological imperative. How can we leave something so critically important to the very future of humanity up to the free market? How can we stand by while so many people are unhappy with the quality and quantity of romance in their lives? How can we justify the veritable anarchy that is the dating world when we accept government regulation in so many other areas of our lives that are deeply personal and important?

We all recognize the importance of, for example, occupational safety regulations, food safety regulations, and regulation over the substances that people choose to put in their bodies. And we all acknowledge that without these regulations, suffering would be far more widespread.

That’s why government regulation of the dating market is long overdue. Few “industries” have been as responsible for such a massive scale of suffering as the anarchy that is the dating world. Chances are, you’ve experienced some of it yourself.

It would be impossible to calculate the full cost of dating anarchy, because the damages that come from it are often long-standing and can have wide-ranging social effects. Let’s look at just a few of the problems that are a direct consequence of this unconscionable lack of regulation.

Emotional pain. No one reading this can say with a straight face that dating hasn’t caused them significant emotional pain at some point in their lives, and often several times. Nasty breakups, unrequited love, shyness and anxiety, lovesickness, embarrassment, and self-esteem issues are all common features of the current dating anarchy.

Poor matches. Between 40% and 50% of married couples end up getting divorced in America. This does not include the countless unhappy couples who choose not to get divorced for whatever reason (kids, religion, etc.). And this is just marriages – think about how many more unmarried couples are also not right for each other! This isn’t just bad for the couple; oftentimes, children can be the victims. Consider all the kids growing up with single parents or who witness discord and even nasty divorces in their home lives. The negative psychological impact of this can affect the child well into adulthood or even for their entire life – and potentially get passed on down to their own children one day.

Compare this with arranged marriages, which have only a 4% divorce rate; the divorce rate in India, where most marriages are arranged, is the world’s lowest at 1.1%. If this isn’t proof that central planning works, I don’t know what is.

Ugly man or pretty girl

False advertising. There is a lot of lying, misrepresentation, and general attempts to mislead others under dating anarchy. It is nearly a universal phenomenon that people will attempt to portray themselves in as positive a light as they can when dating, and to hide their negative qualities. This is true for both men and women. Consider men who will claim they are making significantly more money than they actually are, and women who wear makeup and dress in such ways to cover up their faults while accentuating their positive qualities.

And now, with the advent of online dating, things have gotten a whole lot worse. According to the Huffington Post, a full 54% of online daters found someone who “seriously misrepresented themselves.” The numbers may be even worse than that. According to an article in the New York Times citing various studies of online dating,

  • 81% of people misrepresent their height, weight, or age in their profiles
  • Women described themselves as 8.5 pounds thinner in their profile than they really are, while men were generous to themselves by about 2 pounds
  • Men rounded up their height by half an inch
  • Women’s profile pictures were on average a year and a half old, while men’s were six months old.

With all of this lying going on, people cannot make informed decisions about whom they should date. This results in immense amounts of wasted time and heartache, and surely contributes to the problem of poor matchups. And it could largely be prevented with a suitable regulatory regime.

Because we have laws that prevent it, it is far less frequent for people to lie about, say, what ingredients are contained in foods (and those who do lie can be prosecuted). It’s time we extend this into the realm of dating.

Inequality. This is another big one. Some people have lots of sexual partners, yet others remain virgins. Some people, due to factors beyond their control, are simply at an unfair disadvantage under dating anarchy. You can think of this as just like a problem of unequal market power – the same way that large corporations have their pick of job candidates and can enforce their will on those they employ, extremely rich or good looking people command an unfair advantage over their poor and ugly counterparts.

Unsurprisingly, research has shown that attractive men and women have a serious advantage in choice of sexual partner – they get their pick of the litter far more easily than less attractive people. Men have a strong preference for dating beautiful women, and women have a strong preference for dating wealthy men. This just further exacerbates other forms of inequality; men who are already wealthy get the most dating success – the rich get richer.

Physically unsafe. Perhaps the most serious issue with modern anarchic dating is that it is physically unsafe. The dangers are manifold, well-known, and have caused irreparable damage to millions of people. A national survey found that 57% of rapes happened on dates. Similarly, domestic abuse is incredibly common. One out of every three female homicide victims every year are killed by their current or former partner. This is clear, irrefutable evidence that people cannot be left to their own devices in choosing a partner.

Besides violence, there are other dramatically life-altering consequences of an unfettered dating “market.” The CDC reports that 20 million new sexually transmitted infections occur every year, half of which occur in the 15-24 age group. On top of that, half of all pregnancies in this country are unintended. How long will we allow this to go on?

 

A Modest Proposal For Dating Regulations

Based on the above arguments, it is clear that regulations regarding dating are well past due. This is fairly new territory for the government, and legal minds better than mine will be far more capable of hammering out the details and plugging the loopholes. Nevertheless, I would like to propose a framework for some of the regulations that can go a long way towards remedying the ills of anarchic dating.

For starters, there will need to be a new office created under the Department of Health and Human Services tasked with writing and enforcing the relevant rules. This office (let’s call it the National Dating Bureau, or NDB) will be responsible for maintaining a database of all those Americans who are registered to date in this country.

All Americans who wish to date must register with the NDB and receive a permit before they can do so. I recognize that there is some ambiguity in what constitutes a “date”, but most of us have a fairly intuitive grasp of what this means (and legal scholars, in tandem with relationship experts, will come up with a suitable definition).

Of course, the process of obtaining a dating permit must remain as frictionless as possible, while still ensuring improved safety and quality of dates, as well as a more equitable dating system. I propose that we borrow from the already successful Drivers’ Education model for teaching teenagers how to drive. For one quarter of all students’ freshman year of high school, pupils will complete the Dating Education program in lieu of Phys. Ed. For parents who do not want their children dating so early for religious reasons, there will be an exemption.

Experts will design the curriculum, of course, but I have a few suggestions for topics that should be covered. Courses about the qualities of successful relationships, what to look for in a partner, sexual health, tolerance, compromise and conflict resolution, honesty and transparency, and self-respect. With this background, youngsters will be far more prepared for the challenges of dating. Upon the successful completion of an exam on these materials, students will be granted their dating permits, which will be issued by the individual states.

That works for the next generation, but what about those of us who are already out of school? I acknowledge how busy most adult Americans are, and the government will respect this with a lighter touch of regulations. Rather than a full course of study, centers will be set up in each state where adults can sign up to take an abridged version of the class with only twenty hours of class time (this can be done over a single intensive weekend). In addition to passing the exam, adults will also need an STD screening and a background check before permits are issued.

Just like the many other areas in which occupational licensure and safety regulations help deal with market failure, dating permits will ensure that those in the dating pool are qualified to be there.

Additional regulations will be necessary to ensure that those authorized to date have equal access to quality dates, regardless of their privilege. There are numerous ways that this could be implemented, and policymakers should consider the pros and cons of each before deciding which is ultimately best. Two specific ideas come to mind:

  • Strict dating quotas
  • A “cap and trade”-like system for dates, analogous to the proposed carbon emissions scheme.

In the first case, anyone with a dating permit is free to go on two dates per week, and perhaps after an advanced dating class, a third. This is the ideal way to prevent the 1% from rigging the dating market and exploiting everyone else.

Under a cap and trade scheme, dates become a commodity with dollar value. This is a more flexible system than the first case, because it allows people to sell off dates on weeks where they don’t feel like dating as much, and gives people leeway to date more if they are feeling particularly amorous. As a side benefit, by taxing trade in dates, the government will have a huge new revenue source. Based on the most recent models, this could lead to an incredible $200 billion per year in tax revenue, making the NDB arguably the most efficient government agency to date. The problem with cap and trade is that it still allows those with greater means to potentially exploit the system and go on more than their fair share of dates.

Cat dating profile

In an effort to improve transparency in dating while simultaneously making it more equitable, the government will support efforts to facilitate information sharing among prospective daters. The NDB will work with states to set up their own dating sites (match.gov), so that everyone has access to an online dating profile. Naturally, it won’t be mandatory that people use the state’s site; other approved online dating sites will be available as well. In order to obtain a license to operate a private dating site, site administrators will be required to observe relevant “know your customer” laws, so that people cannot date anonymously in order to hide their faults and commit fraud. In addition, new information sharing laws will need to be implemented in order to prevent the hacking and theft of peoples’ private information that is so prevalent these days. It is a priority of this new legislation that as much information be made available to daters in order to prevent wasted time on dates that never would have worked out, and to generally make the process more honest. It is also a safety measure, so that bad apples can be more easily removed from the dating system.

In order to make this process as equitable as possible, we must recognize that many individuals have more limited means than others. To combat the effects of this inequality, the government will provide date stipends to be used only at approved venues (specific restaurants, movie theaters, and so on, after they have applied and been approved by the NDB). This Supplemental Courtship Assistance Program (SCAP) will issue its payouts discretely, so as not to subconsciously influence partners’ perceptions of each other.

Once an aspiring couple has gone on sufficient dates and gotten to know each other well enough, they must apply to the NDB and receive approval before being considered in an official relationship. Since the vast majority of relationships end in failure, this is a critical step to help minimize the consequences of the poor decisions that we all so often make! The application will include providing the NDB access to the prospective partners’ medical records to ensure genetic compatibility as well as a full psychiatric evaluation in order to determine that both partners are truly ready for a relationship. A writing sample, answering the question “For what reasons would ___ and I make a great couple?” will also be required. The NDB will work with Facebook to make sure that nobody changes their relationship status without prior approval. Finally, the relationship will undergo an annual review process involving an STD screening and personal interviews with the NDB’s licensed relationship experts. If the NDB determines that a relationship is unhealthy, it has the authority to nullify an existing relationship, subject to an appeals process for these couples.

I don't have ex's

Possibly the biggest emotional minefield under dating anarchy is the issue of breakups. Too often, the reasons one person breaks up with another are simply unjust. This isn’t merely a waste of time and resources; it is inherently unfair. As such, a panel of experts will determine which reasons for breakup are appropriate. Breaking up with someone for reasons related to race, gender, or sexual orientation is unethical and should already be considered illegal discrimination under the Civil Rights Act. Approved breakup reasons will center on issues of gross incompetence or neglect. A party to an official relationship can upload a Termination of Relationship form through a secure portal on the match.gov site, including sufficient documentary evidence to demonstrate that their breakup is for an approved reason. If a breakup is approved, there will of course be an appeals process for breakup victims in order to further protect their rights.

In order to implement these proposals, the cooperation of law enforcement at the local and national level will be paramount. Expanded surveillance will be necessary in order to catch those who are dating without a permit. In addition, there is a very real possibility that unlicensed daters will callously forego their social responsibility and attempt to avoid this regulatory system by bringing dates into international waters via cruise ships or across the border into Mexico or Canada. To prevent this, undercover agents will be placed on every cruise ship, and will make arrests when the ship is back in American territory. A Fugitive American Dating Control Act (FADCA) will require all foreign hotels to report to the NDB pertinent data on Americans who lodge with them. Failure to satisfactorily report this information will result in sanctions.

While I anticipate some controversy over these proposals from the more conservative and reactionary segments of America, their fears and complaints are ungrounded. There is precedent for every aspect of these proposals. To quote directly from the United States Constitution:

“The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States” [emphasis mine]

The very same Constitution that conservatives so often use to justify their hate-spewing and exploitation-loving policies clearly grants Congress the power to legislate on behalf of the general welfare of the United States. Tell me: in what way does fixing one of the greatest problems known to man not serve the general welfare?

In the same way that no one would ever want to go back to the days of the robber barons in terms of how society regulates employment relations, 100 years from now people will think the same thing about romantic relationships.

 

Just Kidding – Propaganda Techniques I’ve Used In This Proposal

In case you have not figured it out by now, the preceding was purely satire. Unfortunately, I cannot assume that everyone reading this would recognize it as such. I suspect that there may even be a few people out there who would read this and conclude that I’ve had a brilliant idea. Sometimes, real life imitates the absurd and can be indistinguishable from parody. Oh well.

In any case, other than the handful of jabs that I couldn’t resist throwing into the above, I tried to write it as though this were a legitimate proposal. In doing so, I employed a handful of misleading and propagandistic techniques and logical fallacies to “bolster” my argument. Going through these would be instructive, because I have found that similar methods of argument are often used when discussing other existing and proposed regulations. Discerning readers can likely find many more, but I want to draw attention to at least a handful of them here.

  • All of the problems with dating were ascribed to anarchy, with the implicit assumption that regulation would cure these ills – even though no evidence was cited to back that up. This is easy to get away with, because the proposed solutions have the intent of fixing the problems. So long as the intent is positive and the proposal seems like it could plausibly work, most people will be convinced.
  • In describing the current dating anarchy, only the negative aspects were mentioned, and positives were completely ignored. There is simply no acknowledgement that, for the most part, dating “anarchy” works great.
  • The biological importance of dating and reproduction was cited as a reason for regulation. But the importance of any given industry or issue is irrelevant to whether regulation is good policy or not. The effects of the proposed policy are what matters.
  • I argued that arranged marriages were equivalent to central planning. It is incredibly common for statists to argue that because libertarians don’t think something should be regulated by the government, it must therefore not be regulated at all. It is beyond the scope of this article to delve deeply into this; nevertheless, it should be clear that there is a huge difference between having your parents decide who you marry and having a bureaucrat make the decision. Government central planning is backed up by force; presumably, arranged marriage is a cultural phenomenon enforced by social norms rather than violence.
  • I have employed the “won’t somebody PLEASE think of the children!” argument. You can justify nearly anything by even attempting to show that it is “good for our children.”

  • I’ve created “bad guys” or enemies whom a large percentage of the population are naturally envious of. People who, for whatever reason, get the most dates…well, this must be either because of some unwarranted “privilege” that they have (wealth, status, good looks), or because they cheated the system by lying and misrepresenting themselves.
  • A lot more was made of the fact that people misrepresent themselves while dating than is deserved. Sometimes the misrepresentations people make are truly bad (think catfishing), or are bad idea because communicating your values honestly is important in a relationship. But girls wearing makeup or certain kinds of clothing, for instance, is something that men appreciate. And saying that you are an inch taller than you are is hardly consequential; if it means anything to someone, they can figure that out on the first date and not go on a second one. But here, I have turned the whole thing into an issue of asymmetric information causing power imbalances and other problems. Then I mention that you don’t see as much lying in the food industry because of relevant food labeling laws – but this is not an empirical fact, and it is unsubstantiated.
  • I’ve taken completely natural subjective preferences (women prefer wealth and men prefer beauty) and used them to argue about inequality. Completely ignored is the fact that regulations can’t possibly change these preferences, even if they could force people to act outside their preferences. Also ignored is the evolutionary and/or rational basis for these preferences.
  • Statistics were used misleadingly (big surprise!). First, I said that 57% of rapes occurred on dates, and then I claimed that this is clear evidence that people choose partners poorly. But the two have no connection whatsoever. An appropriate statistic would be what percentage of people are raped on dates, not how often rapes occur on dates. The STD/pregnancy statistics were just fear-mongering. For that to be evidence that regulation is warranted, we need to assume that regulation would solve those problems, precisely what the proposal is trying to show. Circular logic.
  • I mention that information sharing agreements are necessary for dating sites to operate legally in order to prevent hackers from stealing private information. Completely ignored is how this is simply giving the government access to this information, and it is assumed that it won’t be used maliciously by actors from within the government. It also assumes that the government has some kind of right to this personal information that others do not. Finally, it assumes that this kind of information sharing somehow increases information security, which is most certainly not the case.
  • I mention that transparency and honesty is critical between partners, but then the SCAP program (subsidized dates) involves hiding peoples’ wealth from each other. Similarly, requiring pre-approved reasons to break up fosters dishonesty – both between partners and certainly toward the government. These kinds of ironies and unintended consequences are rather common components of regulations.
  • Approval is required to start a relationship because people so often make mistakes. But then it follows that bureaucrats are equally liable to make mistakes, and arguably more liable because they are not intimately familiar with our individual thoughts and feelings. This type of faulty reasoning is so prevalent in arguments for regulation, it makes me sick. How often do you hear that “people need to be protected from themselves.”?
  • Precedent is used to justify the entire thing. These regulations are morally acceptable because comparable regulations have been implemented in the past. But what if the rationale for those precedents is equally as mistaken as it is for arguments to regulate dating?

It’s very easy to write a convincing argument for just about anything.

 

The Moral Absurdity Of Regulation

While I’m certain there are some people who would read the above proposal and nod approvingly, I believe (or at least I hope) that most people would reject it as absurd. Unfortunately, most people don’t seem to recognize that ALL regulation is absurd, and for the same reasons.

What is it specifically that makes regulating the dating market so repulsive and unjust? Before answering that question myself, I’d like to consider what answers a statist might give.

Many would likely argue that dating regulations would never work. This is certainly correct. But that would imply that regulations are only just if they do work (also correct, but in my opinion, an insufficient condition). Given that other existing health and safety regulations (and all regulations, really) don’t achieve their desired social benefits (more on this later), then these other regulations ought to also be abandoned on consequentialist grounds. I suspect that most liberals would be quite unhappy with this result.

A related argument is that personal relationships are too complex to regulate, as opposed to far more straightforward work and commercial relationships. But this isn’t true at all. Consider how nobody wants to work with someone who has a “bad attitude,” however difficult that is to define. How can you possibly regulate around that type of consideration? Is a “bad attitude” a “just” cause to fire someone? What if the person with a “bad attitude” was black or disabled?

Perhaps it is the personal and private nature of romantic relationships that make them immoral to regulate. But again, this does not stand up to scrutiny. What makes a romantic relationship more private than any other kind? It is completely subjective and arbitrary to make this claim. Many people are downright vocal about their sex lives (sometimes to the chagrin of those near them), and many people are quite reserved about telling others how much money they make.

alderaan places

I submit that the reason why these proposed dating regulations are repulsive is that they involve the use of unprovoked coercion in order to prevent people from interacting in a way that would be voluntary for all involved parties. In other words, a regulation is a threat of violence against innocent people. Behind every law there is a gun – if you do not comply, state goons will resort to violence against you. Sometimes, that means murdering innocent people because they were selling loose cigarettes. Sometimes, that means molesting someone for walking the streets of New York while black, or because they needed to fly somewhere. Sometimes, that means shutting down a little girl’s lemonade stand because they didn’t have a permit. But at least that helped keep us healthy and safe, right?

 

Regulations Don’t Work

As stated in the previous section, a necessary (though not sufficient) condition for a regulation to be morally just would be for it to actually succeed in whatever its positive intentions are. Generally, this means improving safety and quality.

In fact, it must not only be shown that the regulations would work, but also that the benefits outweigh the costs. And given that, according to a report from the Competitive Enterprise Institute, regulations have cost the US economy $1.806 trillion per year (more than half of the federal budget, and more than 10% of total US GDP!), a very substantial safety benefit would need to be demonstrated. Keep in mind, also, that the brunt of this cost is borne by the poor, who are forced to pay higher prices and are excluded from competing in markets with higher regulatory barriers.

The costs are not merely financial, however; regulations have negative implications in other domains. For instance, were we to allow the government to regulate dating, there could be substantial repercussions in terms of individual freedom. In fact, the government already does this to some extent – that’s why gay marriage is still, ridiculously enough, illegal in some places. But it’s easy to envision other costs of further dating regulations – any sexual taboo could be regulated. Not only that, but well-connected individuals might get access to the most attractive people or otherwise flaunt the rules. This is exactly the way regulation already works in other areas.

The total costs of regulation are impossible to measure. Without going into too much detail, this is because our valuations of things are subjective. How can you possibly quantify the cost of lost liberty? You can’t, of course, and this has implications in all regulations, not just the romantic kind:

““There’s no accounting for taste” isn’t just something one can say to shrug off his buddy’s dating someone he finds unattractive. It’s an explanation of our individuality. In dating, there are millions of unique tastes and subjective valuations. This range of valuations makes regulation inherently unjust, because the perceived value of another person as a romantic partner cannot be quantified.

But the same may be said of most any government regulation. What government agent should have the authority to say that a certain job pays “too little” or is “too dangerous” to be legal? Such decisions must be left up to the people applying for those jobs, who are more familiar with their own situations than a bureaucrat in Washington could ever be. If Cathy badly needs work experience, that job that pays $5 per hour may be perfect for her, even though it would be a poor fit for someone else who is looking to pay his mortgage.”

But even though we can’t do a fully accurate cost-benefit analysis on regulations, we can try to look at the effects that regulations have had in terms of their stated goal: improving quality and safety. I do not have space to go into great detail here, but will provide links for further study if you are interested.

Occupational licensure, ostensibly aimed at making sure practitioners (any job, but health care is specifically what comes to mind) are qualified, has substantially increased costs for services without a substantial improvement in quality. This is because licensing requirements decrease the quantity of practitioners available, leading people to use lower quality substitutes and generally decreasing their access. The link above shows that this has led to reduced quality in electrical work, dentistry, plumbing, real estate, and animal care, though it should be generally true as well.

Then there was the 1906 Meat Inspection Act, which was supposed to protect consumers from the evils of the unregulated meat packing industry (and everyone knows that Upton Sinclair’s “The Jungle” proved this was necessary, right?). Government inspectors would go to the meat packing plant, poke meat with a rod, smell it, and deem the meat safe if the rod smelled fine. Then they’d repeat the process over and over with the same rod. The (predictable) result? Pathogens would be spread from bad meat to good meat, potentially infecting entire plants. Here’s the best part: this ridiculous method was continued through the late 1990s! The FDA can be very slow in approving new food safety processes for commercial use, the implications of which are difficult to measure. Not to be outdone, the Agriculture Department has prevented small meat packers from testing their own animals for Mad Cow Disease at the behest of larger companies that are afraid that market forces will force them to do their own expensive testing as well.

Worst of all is the FDA regulating the entire drug safety process. Dr. Mary Ruwart estimates that 4.7 million people have died needlessly over a 40 year period because they were denied access to potentially lifesaving drugs that the FDA had not yet deemed safe. Aspirin and penicillin would likely flunk the FDA approval process today.

Feeling safer yet?

Here’s a few more. Houses built under FEMA guidelines suffer more damage than houses that weren’t. The Federal Railroad Administration makes us less safe by mandating antiquated safety standards from the 1910s. Air bags were known to kill children, but were mandated for many years anyways. Corporate Average Fuel Economy standards led to smaller, less safe cars, resulting in 2500 needless deaths per year. In general, regulatory overload makes Americans less safe.

What about labor regulations and workplace safety? Free markets didn’t create child labor; they ended it. Had children not worked prior to the Industrial Revolution, they would have starved to death. If ending child labor was as easy as pushing a button/writing a law, every legislator would have done so, and far sooner. Similarly, improvements in occupational safety and shorter workweeks are a consequence of capital accumulation under market competition, not unions. For a good explanation of how markets improve workplace safety, see this.

And that brings us to our next subject: if the government is not enforcing safety regulations, then who would? How can we be kept safe? The answer, in short, is that the market process itself fosters safety improvements.

Let’s use dating as an example. Julian Adorney, whose insightful articles inspired this post in the first place, writes:

“No doubt there’s potential for abuse in the dating market. Sleazy men can treat women poorly; dishonest women can cheat on men. Some people get too drunk and do things they regret. Break-ups can cause immense emotional distress. We as a society recognize this, but we do not believe that this danger calls for government intervention. Instead, individuals take action to mitigate the damages above. A girl who dates a sleazy man will tell her friends about him, essentially giving him a negative review to steer others clear. People who drink too much and engage in behavior they later regret will learn from their mistakes and avoid similar behavior in the future. They make the similar mistakes again, but on the whole, the dating market contains a variety of complex mechanisms through which social pressure is applied to discriminate against those who break the rules of dating while favoring those who function within the established rules.”

online dating fail

An example of suggested self-regulation.

Markets are self-regulating. If safety is what consumers want, then that is what the market provides. I will not go into too much detail here, but things like Consumer Reports, the Better Business Bureau, product reviews, feedback mechanisms such as that of eBay, escrow services, insurance, and so on, can all be used to make life safer and products of higher quality. And they do this without resorting to violence, unlike government regulation.

Consider the Jewish practice of eating kosher. An entire industry of kosher certifications has evolved in a purely bottom-up process. There are several competing organizations that provide food labeling services and certify that the product is kosher. Read more about how kosher labeling is a model of private regulation here.

My previous job was at a healthcare IT firm. A private company, KLAS, did research and analytics on healthcare technology, and my company (and surely our competitors) was constantly striving to improve how we scored with them. The result was better information for hospitals deciding what type of medical record software to use – and ultimately, a better experience for hospital patients.

And you’ve probably never heard of Underwriters Laboratories (UL), but they do safety and quality tests on tens of thousands of products every year, likely including several in your home right now. They largely solve the problem of how you can trust that products which are purchased infrequently (and thus it is harder to “vote with your dollars” in future purchases) are safe and effective. It is truly a remarkable organization, and you can and should read more about it here. More:

“The Lab was the first to set standards for certifying the safety of pilots and planes before the government intervened. It set the standards for building materials, fire-fighting equipment, air conditioners, and household chemicals. It employs safecrackers and pyrotechnicians to test safes, and a variety of unique machines and devices to test thousands of other products each year. It has been testing multicolored Christmas lights since 1905, and entered the building-code business right after the San Francisco earthquake of 1906.”

Voluntary organizations can be (and have been) established in many other fields in order to promote consumer safety. For an interesting discussion of self-regulation, particularly in the context of privacy, see this.

Ultimately, we must conclude that regulations in general are equally as absurd as my ridiculous proposal about regulating dating.

 

Conclusion

To finish off this article, I can do no better than to quote Mr. Adorney at length:

“This dating market is almost pure anarchy. No government bureaucrat tells you who to date. Straight white women aren’t legally obligated to only date straight white men. While sexual conduct with minors is forbidden, anyone over age eighteen can date anyone else over age eighteen.

And once you begin dating someone, no government agent steps in to tell you how the relationship must progress. There are no laws around what restaurants are “appropriate” for a first date; no burdensome rules around how many hours a date can last or how many drinks one party can imbibe.

And in the absence of government rules, unofficial codes of behavior spring up. Social norms emerge, crowd-sourced and shaped by society as a whole. It’s appropriate for a guy to buy the girl dinner. Getting drunk on a first date is frowned upon. Dating someone else on the side — cheating — is immoral and is generally cause for break-up.

No government official made these rules. No Department of Safe and Responsible Dating set these codes down in law. Instead, they form organically. Culture, from television shows like Friends to love songs, shape our social mores. How our friends behave when they date impacts how we behave. If your friends say that it’s wrong to cheat on a boy you’re seeing, you’ll probably absorb that as a rule of romance.

The result is anarchy: not an absence of rules, but an absence of rulers dictating how we behave and throwing those in jail who do not comply.”

The Marxist Mindset Regarding Labor

marxism labor

Karl Marx’s view of economics is in many ways nearly the opposite of mine. Nevertheless, I think he has made many interesting contributions to the study of social institutions. To learn more about his views, I recently read most of Robert Tucker’s The Marx-Engels Reader, which contains many samplings of his (and Engel’s) works on a variety of subjects.

As I read through these selections, I particularly noted how Marx’s mindset regarding labor is so radically different from my own – and I think this mindset is actually quite prevalent today among many, particularly those on the left. It would be instructive to compare and contrast these differing views on labor, at least in part because his views make his belief in the thoroughly discredited labor theory of value more understandable.

Before we explore this any further, I want to start with a disclaimer: I am not a Marx scholar. My knowledge of his thought is limited – though I likely have read, at this point, somewhat more of his work than many people who claim to know a thing or two about him. Nevertheless, my interpretations of his quotes here are mine only, so if you are reading this and happen to be a Marxist, feel free to set me straight. It’s tough to read 19th century philosophers…

 

Estranged Labor

Many people are familiar with (the existence of, at least) Marx’s seminal work on economics and his critique of capitalism: Das Kapital.  Fewer are aware of his Economic and Philosophic Manuscripts of 1844, selections of which I found far more interesting than Capital, frankly. The following quotes are from these manuscripts under the subheading “Estranged Labour,” from Marxist.org.

All these consequences are implied in the statement that the worker is related to the product of labor as to an alien object. For on this premise it is clear that the more the worker spends himself, the more powerful becomes the alien world of objects which he creates over and against himself, the poorer he himself – his inner world – becomes, the less belongs to him as his own. It is the same in religion. The more man puts into God, the less he retains in himself. The worker puts his life into the object; but now his life no longer belongs to him but to the object. Hence, the greater this activity, the more the worker lacks objects. Whatever the product of his labor is, he is not. Therefore, the greater this product, the less is he himself. The alienation of the worker in his product means not only that his labor becomes an object, an external existence, but that it exists outside him, independently, as something alien to him, and that it becomes a power on its own confronting him. It means that the life which he has conferred on the object confronts him as something hostile and alien.

According to Marx, labor is essentially a zero-sum game. When you work, you lose. Specifically, you lose a part of yourself whenever you are working.

There is a distinction, not made in this quotation but derived from my (limited) knowledge of Marxist thought, which is important to mention. Expenditure of labor power in and of itself isn’t necessarily “bad” – only when it is done for a capitalist, who supposedly is siphoning off some of this labor power, is there a loss in this sense. Presumably, if the worker were to keep the entire product of his labor via owning the means of production, then he would no longer “lose” part of himself to it.

Any way you spin it, Marx does not look at labor in a particularly intuitive way. For Marx, the creation of an object implies an equivalent destruction of the self.

It is true that time spent laboring is time that cannot be spent doing something else – that is, that there is an opportunity cost to labor. When I am working, I am not attending the theater, I am not playing volleyball, nor am I going on a date. There most certainly is a “loss” in this regard. But everything has an opportunity cost – when I’m on a date, I am not writing. This does not imply that I am any worse off because of it.

Next quote:

(According to the economic laws the estrangement of the worker in his object is expressed thus: the more the worker produces, the less he has to consume; the more values he creates, the more valueless, the more unworthy he becomes; the better formed his product, the more deformed becomes the worker; the more civilized his object, the more barbarous becomes the worker; the more powerful labor becomes, the more powerless becomes the worker; the more ingenious labor becomes, the less ingenious becomes the worker and the more he becomes nature’s slave.)

Political economy conceals the estrangement inherent in the nature of labor by not considering the direct relationship between the worker (labor) and production. It is true that labor produces for the rich wonderful things – but for the worker it produces privation. It produces palaces – but for the worker, hovels. It produces beauty – but for the worker, deformity. It replaces labor by machines, but it throws one section of the workers back into barbarous types of labor and it turns the other section into a machine. It produces intelligence – but for the worker, stupidity, cretinism.

I find it hard to understand his point here. If a worker is employed by a capitalist, producing more does not imply consuming less, even if one accepts the labor theory of value. To produce more may sometimes imply working harder, in which case the worker’s required subsistence consumption will increase slightly. But it could also mean the worker is simply more productive, which ought to generally happen over time.

Marx says that the product of labor is primarily directed towards consumption by the rich. But if anything, capitalism is about mass production. You’ll find no argument from me against the idea that the system of state capitalism concentrates wealth in the hands of the few – and that this is the system that was prevalent both then and now – but the products themselves are not simply intended for sole consumption by the rich.

I’m not arguing here that capitalism (again – state capitalism) is completely fair to laborers. But how can he say that workers lose a part of themselves when they work?

What, then, constitutes the alienation of labor?

First, the fact that labor is external to the worker, i.e., it does not belong to his intrinsic nature; that in his work, therefore, he does not affirm himself but denies himself, does not feel content but unhappy, does not develop freely his physical and mental energy but mortifies his body and ruins his mind. The worker therefore only feels himself outside his work, and in his work feels outside himself. He feels at home when he is not working, and when he is working he does not feel at home. His labor is therefore not voluntary, but coerced; it is forced labor. It is therefore not the satisfaction of a need; it is merely a means to satisfy needs external to it. Its alien character emerges clearly in the fact that as soon as no physical or other compulsion exists, labor is shunned like the plague. External labor, labor in which man alienates himself, is a labor of self-sacrifice, of mortification. Lastly, the external character of labor for the worker appears in the fact that it is not his own, but someone else’s, that it does not belong to him, that in it he belongs, not to himself, but to another. Just as in religion the spontaneous activity of the human imagination, of the human brain and the human heart, operates on the individual independently of him – that is, operates as an alien, divine or diabolical activity – so is the worker’s activity not his spontaneous activity. It belongs to another; it is the loss of his self.

To some extent, this mentality makes considerably more sense in the context in which Marx was living and writing – in the latter stages of the Industrial Revolution, where much of the non-agricultural work was somewhat unstimulating, repetitive factory work. I’m sure that work was terribly uninteresting, and that laborers would have vastly preferred to be sitting at home on the couch with a cold beer.

But humanity had not accumulated nearly so much capital then as we have now. The general state of existence in terms of wealth was far inferior back then. It’s easy for me to say that I would prefer to be working at a software company than toiling away in an uncomfortable factory. But in a world with vastly less capital, I wouldn’t have the choice of such luxuries. The fact is, since these workers chose to work in the factories, even in poor conditions, they have demonstrated the preference for this work instead of their alternatives (perhaps starving to death?).

Of course, Marx disagrees. He considers labor to be “forced labor.” Why? Because people don’t like doing it, and prefer leisure instead.

But even people who do own the means of production (the self-employed, wealthy capitalists, etc.) hate their jobs. Job-hating is so common that it doesn’t even warrant discussion. And it’s not even necessary for people to specifically hate their job to disprove his claim; the vast majority of people would prefer leisure to work, even if they enjoy their job.

Labor is only “forced” in this sense in that it is forced by our very nature as humans who run on fuel. We die without some form of sustenance, but this sustenance is not simply provided for us willy-nilly. This isn’t the Garden of Eden. We must create food, and we choose to create most other things because they make our lives more enjoyable.

To Marx, however, a far superior solution would be if we did live in a Garden of Eden. Even if workers owned the means of production, they’d still need to work, and the work would be just the same. How would this situation fundamentally differ with regards to losing a part of yourself to the object of your labor?

One final quote, from Marx’s Grundrisse, under the section called The Development of Exchange and of Capital:

…the relation of slavery or serfdom has been suspended. Living labour capacity belongs to itself, and has disposition over the expenditure of its forces, through exchange. Both sides confront each other as persons. Formally, their relation has the equality and freedom of exchange as such. As far as concerns the legal relation, the fact that this form is a mere semblance, and a deceptive semblance, appears as an external matter. What the free worker sells is always nothing more than a specific, particular measure of force-expenditure; labour capacity as a totality is greater than every particular expenditure. He sells the particular expenditure of force to a particular capitalist, whom he confronts as an independent individual. It is clear that this is not his relation to the existence of capital as capital, i.e. to the capitalist class. Nevertheless, in this way everything touching on the individual, real person leaves him a wide field of choice, of arbitrary will, and hence a formal freedom. In the slave relation, he belongs to the individual, particular owner, and is his laboring machine. As a totality of force-expenditure, as labour capacity, he is a thing belonging to another, and hence does not relate as subject to his particular expenditure of force, nor to the act of living labour. In the serf relation he appears as a moment of property in land itself, is an appendage of the soil, exactly like draught-cattle. In the slave relation the worker is nothing but a living labour-machine, which therefore has a value for others, or rather is a value. The totality of the free worker’s labour capacity appears to him as his property, as one of his moments, over which he, as subject, exercises domination, and which he maintains by expending it.

To Marx, once you have sold your labor-power to a capitalist, you have become his slave, his “laboring machine.” In a state capitalist system, I actually think there’s something to be said for this idea. Due to state intervention, the relative power of major corporations as compared to lowly workers is gigantic. No, I would no go so far as to call it slavery, but there are certainly similarities.

For instance, people are “forced” to work for lower wages in the sense that government policies limit the availability of work in general, thus giving the capitalist/employer far more leverage in the hiring process.

But I suspect Marx holds this to be generally true of market-based systems (correct me if I’m wrong, Marxists!). On the contrary, under a system of freed markets, this power imbalance would radically shift. People could choose to work or not work however they saw fit. This labor would not be “forced” in the least bit, except insofar as people need stuff to stay alive – but as discussed earlier, this can’t be considered forced either.

 

Conclusion

I thought these quotes were interesting, and I don’t think they are referenced all too frequently. They provide a helpful window into the Marxist mind, which is useful nowadays, because of the extreme influence Marxism has had on modern political discourse, both left and right.

It seems to largely boil down to a theory of entitlement, which seems so common to me when I read typical mainstream opinion pieces. Everyone wants something for nothing, and nowadays, it is always the state which is there to provide it, if only the people are willing to ask (and even if they aren’t…).

Marx’s analysis of capitalism (but not freed markets) is prescient in many ways, and is worth studying for radical libertarians. But it is mighty unfortunate that such a great mind made such simple errors when it comes to labor.

No, Libertarians Are Not Corporate Shills

intentions vs results

I am often accused of supporting “Reaganomics” or “trickle-down economics” or being “a tool of the corporate elite,” or some other such thing. An implication is that my economic views are conservative, and basically amount to apologetics for the wealthy. Naturally, these ad hominem attacks always come from the “left.”

I think this perspective exists for a few reasons: lack of economic understanding, a conflation of modern capitalism with real free markets, and some psychological traits that would be the subject of another article.

People who view themselves as “progressive” or “left wing” believe that they are rebelling against corporate power and defending the little guy. I believe that most laypeople on the left truly are well-intentioned, and would like to improve the lives of the common man. Unfortunately, the policies that they advocate do precisely the opposite: concentrate wealth upwards.

In this post, I intend to argue that corporate power is just another arm of the state. There is nothing inherently wrong with corporations, but modern capitalism is largely a history of corporations behaving badly. Modern capitalism – NOT the free market – is a system where the power elite are able to extract wealth from the masses and concentrate it into the hands of the few. They do this, not through the extraction of Marx’s “surplus value”, but through creating artificial scarcities and rents through the power of the state.

Put simply, the state is the enforcement mechanism for economic privilege. For those who would like a more economically equal world, it is the state that should be the focus of attention. Leftists who support things like welfare and the minimum wage believe they are helping win some battles on behalf of the working man, but a far better solution would be attack the system of state-enforced economic privilege itself.

Before diving into just some of the ways in which the state is enriching the wealthy, I’d like to quote at length from a recent article by Richard Ebeling:

“Suppose someone were to ask you the easiest and quickest way to drive by car from New York City to San Francisco, California. Since the shortest distance between two points is a straight line, the most reasonable answer would be for this person to take Interstate Highway 80, which runs East-West between these two cities.

Now suppose that this person, instead, starts driving south from New York City on Interstate Highway 95, which would get him, eventually, to Miami, Florida. You tell him that he is on the wrong route; not only will it take him much longer to get to California if he stays on Interstate 95, but he may end up never getting to San Francisco at all.

Rather than thanking you for correcting him and figuring out the best and most time saving way to get back onto Interstate 80, he accuses you of not wanting him to get to California. He wants to know what you have against him and the people of California. Why are you sabotaging his chance to finally find “happiness” in California?

You assure him that you have nothing against either him or California. Indeed, you explain, you’ve even been to California and it’s a very nice place to visit and maybe even to live. You are just pointing out that he is following the wrong route to get to his desired destination, and in that easiest and quickest way as he had originally asked.

He responds by asserting that you clearly have something against him and have some hidden agenda to prevent people from getting to California.

A person saying such things would, to most of us, seem strange or even bizarre. It is, however, the way many critics of the free market respond when an economist or some other proponent of economic liberty explains that government intervention in the market, regulation of business enterprises or redistribution of income and wealth are not the best and most efficient policies to provide an economic and social climate most conducive to opportunity, prosperity and freedom for as many people in society as is possible.

Free market critics frequently assert that the free market advocate “hates the poor,” “doesn’t care for humanity,” is “insensitive to human suffering” and only wants to help “the rich.” And how can we know this? Because he dissents from the governmental interventionist, regulatory and redistributive policies proposed to cure the ills of society.”

Note that, for each of the below foundations of corporate power, there is a lot more that could be said. The intention of this post is to be more of an overview, or introduction, to how the state is the primary driver of corporate power.

 

Monopoly Central Banking

Far and away the largest driver of massive corporations and wealth inequality is the institution of central banking. Indeed, central banking and artificially low interest rates are a major tenet of modern progressive views on monetary policy, despite their professed intention to reduce inequality.

The Federal Reserve creates money from nothing, and those who get to use that money first benefit. The increase in money supply will decrease the value of money, or increase the price of other goods. But this only happens over time as the money moves through the economy. So if the government gets to use this money first – generally to support the military industrial complex, big banks, auto companies, and other favored business interests – they get extra (free) money without having to pay higher prices. Everyone else who gets access to that money later ends up needing to pay higher prices, and is essentially robbed of the value of their savings. This process of prices adjusting in a non-uniform way is called the Cantillon Effect, and is routinely ignored by progressives.

But this isn’t the only way monopoly central banking hurts the poor and enables giant corporations and those who are already wealthy to rake in record profits. The central bank is tasked with setting interest rates, and there is an inherent tendency to keep interest rates low in order to foster investment (and to concentrate wealth). In fact, progressives are very adamant about keeping interest rates low. Just ask, as usual, Paul Krugman. But lowering the interest rate makes savings less attractive and encourages investors to seek higher yields, which pushes up the price of securities, particularly stocks (and housing, and other assets). Of course, it is the wealthy who overwhelming own these assets, and thus they are the beneficiaries of these “progressive” policies. Money printing leads to inflation and lowers the reward for saving, hurting everyone else in the economy who isn’t heavily exposed to these securities.

But central banking doesn’t just make rich individuals richer, it also leads to massive corporate profits, in particular relative to wage rates. As I said earlier, preferred corporations (banks, hedge funds, weapons manufacturers, etc.) are the first recipients of the expanded credit. Let’s say Lockheed Martin is the recipient of an extra $10 million in credit. They use this money to invest in a new weapons plant to expand production. This leads to an immediate increase in $10 million in sales for the construction and other contracting firms who build the plant. But investment expenditure in fixed capital is amortized in cost calculations. If this plant is assumed to depreciate over the course of, say, fifty years, then the only cost on Lockheed’s books this year would be $200,000. In other words, there is a net increase of $9.8 million in profits for these big companies with early access to credit.

Moreover, credit expansion and lower interest rates tend to foster increased capital expenditure for longer term increases in production rather than immediate expenditure on labor. As such, the returns to capital will tend to be higher than that of labor.

There are many other negative effects of monopoly central banking, but I want to restrict this discussion to a very basic overview of how it worsens inequality and improves the corporate bottom line. In this respect, progressives are consistent advocates for the most egregious of economic injustices.

 

Corporate Personhood

In America, there is the legal concept of “corporate personhood,” which means that corporations have many of the same legal rights and responsibilities that an individual would. A major aspect of this is that it allows corporations themselves to sue or be sued – that is, the corporation is considered an entity apart from those individuals who comprise it.

In and of itself, the concept of corporate personhood is not immoral. Corporations, as groups of individuals, should be entitled to the same kinds of freedoms that individuals have. The immorality stems from treating corporations as persons with respect to limited liability. The corporate entity itself is liable for damages they may cause, but the owners or shareholders are not held responsible.

That means that corporate owners can do immoral things without so much regard for the consequences, because they will not be considered personally responsible. This is the main reason a business incorporates itself anyways; why do you think it’s called a limited liability company (LLC)? Ultimately, this allows investors to hire managers who have a legal mandate to pursue profits – but it lets them keep their distance from the way the profits are pursued. This makes a significant difference; imagine how business would change if stockholders knew that they would be liable for the actions of their managers? In other words, if an investment in a company would mean risking the stockholders’ own assets, the way business is done could change radically.

Very few people, anarchist/libertarian or not, would give limited liability to human beings and their direct actions. Most people are aware that having real consequences for your actions helps prevent you from engaging in undesirable or bad actions. Corporate personhood thus subsidizes bad behavior.

In a world where there wasn’t limited liability for shareholders of corporations, the structure of capital would be radically different. That’s not to say that similarly structured organizations couldn’t arise out of a network of legitimate contractual relationships, but I would expect it to be the exception rather than the rule. If shareholders were held individually liable, then buying a share of stock in a company becomes a much more risky and harrowing ordeal. Before doing so, one would want to thoroughly research the company as well as the other shareholders in order to determine how risky such a move might be. Perhaps the free market would supply some kind of insurance for these decisions, thus smoothing over some of those transaction costs. Either way, modern limited liability acts as a subsidy to shareholders by either reducing risk or essentially paying for their insurance policy.

Admittedly, this is an area within libertarian theory of which there is much disagreement. I don’t intend to delve deeply into the debate here. I don’t have enough of a legal background to feel competent in debating this point, to be honest. But my libertarian “intuition” suggests that limited liability is wrong, and it certainly concentrates capital far more than a world without it. For an alternate libertarian take on limited liability, see Stephan Kinsella’s argument here.

 

Intellectual Property And The Patent System

Another way that the state secures undue rents for massive corporations is through the thoroughly mercantilist patent system. Patents grant exclusive monopoly privilege for the practical use of ideas, and impose ridiculously harsh penalties on those who attempt to utilize these ideas on their own terms. In other words, patents create artificial scarcity, and this allows the patent holder to charge higher prices by excluding all competition.

Property is only a meaningful institution in the face of scarcity. We rarely consider it to be “my” oxygen in day to day life. However, when going scuba diving, oxygen is scarce and property relations become relevant again. If I write a book, and somebody else prints it, gives me credit, and makes money from it, there is no scarcity involved. But by getting it copyrighted, I impose scarcity by preventing other people from using their own property in nonviolent ways. I’ve in effect become a partial owner of everyone else’s resources; others no longer have the right to use paper and ink as they see fit. As Murray Rothbard said:

“The man who has not bought a machine and who arrives at the same invention independently, will, on the free market, be perfectly able to use and sell his invention. Patents prevent a man from using his invention even though all the property is his and he has not stolen the invention, either explicitly or implicitly, from the first inventor. Patents, therefore, are grants of exclusive monopoly privilege by the State and are invasions of property rights on the market.”

People often claim that without patents, people will stop innovating. But this is unequivocally false:

“This is borne out by F. M. Scherer’s testimony before the Federal Trade Commission in 1995. Scherer spoke of a survey of 91 companies in which only seven “accorded high significance to patent protection as a factor in their R & D investments.” Most of them described patents as “the least important of considerations.” Most companies considered their chief motivation in R & D decisions to be “the necessity of remaining competitive, the desire for efficient production, and the desire to expand and diversify their sales.” In another study, Scherer found no negative effect on R & D spending as a result of compulsory licensing of patents. A survey of U.S. firms found that 86% of inventions would have been developed without patents. In the case of automobiles, office equipment, rubber products, and textiles, the figure was 100%.”

In fact, the patent system hinders technological development – development which tends to benefit the masses the most. If someone invents something and secures a patent, they lose the incentive to do further research and build upon the now existing body of knowledge. Others can no longer incrementally add to or improve upon this invention, simply by decree. And because of this state-enforced monopoly, the inventor no longer needs to fear competitors doing exactly this – improving the invention. The end result, then, is stagnation.

carlin hats

More importantly to the issue at hand, the patent system concentrates economic power into huge multinational corporations. Simply put, giant corporations scoop up as many patents as they can, not for the sake of innovation, but to exclude competition and protect monopoly profits. Sometimes, a couple of huge firms will come together with a patent “pooling” agreement, which improves their combined market share at the expense of the smaller players in their industry. Cartels like this actually do succeed – unlike purely private cartels, which are inherently unstable – because they are based on privilege that is granted by the state, and backed up with very high penalties. In fact, it is often the case that corporations will get patents not so that they can use the technology, but specifically to prevent others from using it. Look at oil companies and alternative energy patents.

In addition, hiring patent lawyers and the entire process of procuring and defending patents is expensive, and thus far more prohibitive for small businesses and inventors than massive corporations with their hordes of lawyers and significant R&D budgets. Individuals who create new products and get them patented may be inclined to sell those patents to larger firms, due to the uncertainty of being able to defend it. And the employees who actually do the inventing as part of the R&D departments for large corporations are usually required to sign over the patent rights as a condition of employment. In other words, there is a strong tendency that leads away from innovation and towards centralization of corporate power because of the patent system.

Compounding the immorality of the whole patent arrangement is government funding of research. All sorts of grants are given out to companies in order to research some new development (oftentimes military-related), and these companies then get to charge state-enforced monopoly prices for the product of this research, despite having not invested in the research themselves. Essentially, taxpayers end up footing the bill for themselves to be exploited by major corporations – courtesy of state intervention.

Furthermore, international patent regimes are critical for making sure that transnational corporations maintain their monopoly power. This was the major effect of GATT – to lock in a Western monopoly on modern technologies and to ensure that there can never be meaningful competition from the Third World.

 

Subsidizing Infrastructure And Socializing Costs

An often overlooked area in which the state subsidizes massive corporations is through providing infrastructure. It does this primarily by funding major transportation systems, cheap fossil fuels, and providing security. This is a fact that I’ve found is routinely ignored by most on the left, with the exception of Noam Chomsky. But then, he is an anarchist too….

Anyways, it is important to remember than any time the government spends money, this money was originally expropriated from the taxpayers. So it is not government that ultimately pays for roads, bridges, and so on. It is you and me. These services are not provided for free.

Let’s start by considering transportation. While historically, private entrepreneurs have been responsible for creating and improving roads, the US government has largely taken over that function. And not just roads – just about every major piece of transportation infrastructure in the US has been created or significantly subsidized by government. Some examples:

  • The Interstate Highway System
  • Civil aviation infrastructure
  • Railroad land grants back in the late 19th century, where government provided free or significantly below-cost land to railroad producers

Government builds roads?

Again, this was all done using money stolen from the people, and often through the forced theft of land via eminent domain. In other words, all this infrastructure was funded, and all the sacrifice that went into building it, was provided for by average folk. Naturally, the corporations tasked with building this infrastructure were immediate winners. But a more subtle and insidious consequence was in how this changed the fundamental structure of production.

In short, the cost of transportation was socialized, which nearly eliminated the incentive for people to produce and consume locally. Local industry suffers at the expense of larger, more distant corporations, which were able to take advantage of economies of scale that could not possibly have existed on the free market. Clearly, Walmart and other giant corporations that liberals seem to hate on so much could never have come to exist without this government appropriation of resources and infrastructure subsidies. Without this absurd subsidy, giant conglomerates could never compete with smaller, local manufacturing. Not only that, but problems like suburban sprawl and pollution from our cars wouldn’t be happening on nearly the same scale; communities would be more locally organized, and towns and cities would be built with bike and foot transportation in mind.

If you want to learn more about the sordid history of transportation subsidies, you can do no better than reading Kevin Carson.

In tandem with socializing the costs of transportation, the state has helped subsidize the cost of energy, also required for the mass distribution models that many major corporations depend on. It has done this largely via eminent domain, seizing land in which to build pipelines for moving energy cheaply and quickly. Perhaps even more importantly, the taxpayer-funded US Navy guards sea lanes so that oil can be transported far more cheaply.

In fact, the government’s funding of security in general is a massive subsidy to large corporations. Larger organizations with more assets will naturally have higher insurance costs and would need to spend more money on police/security. But the taxpayers have that (largely) taken care of. I’m not going to dive into what a world of purely privatized security might look like here, but it is clear none the less that security is essentially a corporate subsidy.

 

Regulations

Regulations, practically a buzzword among the progressive community, are one of the primary means by which large corporations benefit through the use of the state apparatus. It boggles the mind how liberals don’t seem to get this (except, again, for Chomsky, who then goes on and suggests more regulations for some reason…), despite it being a primary aspect of the “progressive era.”

In the words of Rothbard, describing public-private partnerships:

“We often fail to realize that the point of Big Government is precisely to set up such ‘partnerships,’ for the benefit of both government and business, or rather, of certain business firms and groups that happen to be in political favor.”

The left tends to think that somehow big business and big government are at odds. But throughout history, every expansion in government is funded and supported by some segment of big business. This is because larger, established firms always have an interest in crushing smaller, upstart competitors. Under a free market system, market share is never secure. But regulations create barriers to entry, which reduces that competition and leads to an increase in the size and relative power of the large, entrenched interests. Sure, they need to pay the costs that come with the regulations, but they can afford to do so much more easily than smaller competitors – and as yet nonexistent potential competitors. Bastiat’s “unseen,” for those who know what I’m talking about.

You can see this at every level of government. The most obvious contemporary example at a local level is how taxi cartels are desperately trying to hold on to market share by lobbying their cities to ban Uber. Similarly, professional licensing requirements turn certain professions practically into guilds; the restricted supply of doctors significantly increases the cost of health care, for instance, but vastly increases their salaries. There are a gazillion more examples I could provide.

But it is also (and especially) true at the highest levels of government and industry. Take the pharmaceutical industry, for example. The FDA regulates which drugs are allowed to be sold in the US, and requires expensive testing and a lengthy, multi-year process before a drug can go to market. Existing pharmaceutical companies, while they don’t like to pay for these tests, can certainly afford to do so. But smaller firms generally can’t take the risk. They may need to invest hundreds of thousands of dollars and several years’ effort, and still get their drug rejected. Most won’t even try. (I’ve recently written about a related subject: pharmaceutical companies lobbying for more regulations on dietary supplements.) That’s how you end up with Big Pharma.

Competition is the bane of big business. Laws such as the Federal Trade Commission Act’s “unfair competition” provisions made illegal things like “predatory pricing,” price wars, and “dumping.” Normally, it is difficult for oligopolies to form, because there is a strong incentive to cheat and undercut your competitors, seizing more market share. But this law prohibited selling goods for less than production costs, and thus made it possible for more stable oligopolies to form.

The incentives are clearly there for big business to use the state to enforce monopoly or oligopoly upon their industry and extract unwarranted profits. But there are a couple of further problems with the big business-big government relationship.

Regulatory capture, when the powerful business interests whom the government is supposed to be regulating end up seizing control of these regulations, is ridiculously common. How does this work?

“The basic logic behind the capture theory of regulation is that while the general public is largely ignorant of the regulator’s activities, those in the regulated industries are well-informed, and pressure regulators for favorable regulation. Furthermore, information about regulated industries is largely under the control of those in the industry, and personal connections between regulators and the regulated also influence regulatory outcomes. The result is that regulatory agencies act as agents for those they regulate, not the general public.”

Since this is just an overview, I will not delve into the details and the many, many, MANY examples of this. The most blatant recent example was brought to our attention by whistleblower Carmen Segarra, who secretly recorded tapes showing that Goldman Sachs got to ignore the regulations that they were supposed to abide by. And you can be sure that smaller companies would never have gotten away with this kind of thing.

Obamacare

 

 

And then there is the revolving door between big business and government. Again, I cannot possibly give this subject the treatment that it deserves here. But put simply, those who work in government, often in regulatory agencies, hope to one day make significantly more money working in private industry. As such, they will do a lax job with their regulations because of this. Conversely, some big companies will pay out large bonuses to their executives to take positions in government. It’s not hard to guess why. Here you can see a series of Venn diagrams demonstrating the revolving door between top member of government and various industries. Ken Silverstein at The Intercept has a great take on this, and a perfect example:

“After he went to prison for bribing public officials, lobbyist Jack Abramoff claimed in his memoir, Capitol Punishment, that he controlled around 100 members of Congress. In addition to offering them and their staff free meals at his high-end restaurant, Signatures, Abramoff handed out luxury box tickets to sporting events and junkets to the world’s most exclusive golf destinations. But his most effective tactic was simply to float the suggestion to congressional staffers that he’d hire them when they left the Hill. Abramoff would then effectively “own” the staffer, who would perhaps even unconsciously start making decisions that benefited his future employer. “His paycheck may have been signed by the Congress, but he was already working for me, influencing his office for my clients’ best interests,” Abramoff wrote. “It was a perfect–and perfectly corrupt–arrangement.”

In this environment it’s misleading to use the term “revolving door,” because that falsely suggests that there are sharp lines separating corporate America, government and the influence peddling complex.”

For more on the history of the cozy relationship between big business and the state in terms of regulations, see this and this.

 

Corporate Subsidies

Finally, we come to the most direct and obvious way that the state is used to plunder the people for the benefit of large corporations: corporate subsidies. The US Federal government spends $100 billion per year on direct corporate subsidies. This is one where where I think, thankfully, libertarians and progressives can agree that the state should be rolled back. Since there are so many ways in which subsidies are snuck into government budgets, I can only provide a handful of examples here.

  • Much of the military-industrial complex amounts to a corporate subsidy. Never mind the fact that the industry itself would be just a fraction of its current size if it weren’t for the state in general. There are specific aspects that count as corporate subsidy: namely, foreign military aid. Every year, the US gives billions of dollars to foreign countries so that they can use that money in order to buy weapons from US manufacturers.
  • The massive government bailouts in 2008 were a corporate subsidy (and unfortunately, one that the left tended to support, based on the fallacious idea of “creating jobs”). This includes hundreds of billions of dollars going to giant entities such as Bear Stearns, AIG, Fannie Mae, and Freddie Mac. And then the TARP bailed out all of Wall Street, and later General Motors and Chrysler. I can assure you, the little guy will never be “too big to fail.”
  • Federal land is often leased out to billionaires and large corporations, who have no incentive to treat the land responsibly due to a lack of private property rights. This includes things like leasing land for grazing, logging, and drilling for oil. These companies need not be concerned for the environment, because their contracts run out within a couple years – might as well suck the land dry of as many profitable resources as possible! A far better solution for the environment would be for conservation organizations to buy up swaths of land that they want to protect and then not sell it to these corporations. Duh.
  • Big Agriculture is the recipient of massive corporate subsidies in the Farm Bill that gets passed every couple years. The largest part of these bills is generally food assistance, and particularly the SNAP (food stamps) portion, which one could easily argue is just another corporate subsidy. What do you think these food stamps are spent on? (Note that my argument here isn’t “poor people should stop buying food,” but rather that centralized farming and food processing operations are primary beneficiaries of the program.)
  • The Export-Import Bank provides loans to foreign countries so that they can purchase American-made goods. This is a major corporate subsidy, but the primary benefactor is a single giant corporation: Boeing. The Ex-Im Bank spent $20.5 billion dollars of taxpayer money in fiscal year 2014, 40% of which ended up going back to Boeing. And in a typical case of regulatory capture, the Ex-Im Bank reached out to Boeing to seek their approval on regulatory rules they were writing.

Need I go on?

 

Conclusion

libertarian word

The above is just an overview of the many ways in which corporations and the wealthy elite are made even more rich through the state apparatus. There are a million more assorted ways the state protects unnaturally big business, such as creating a student loan bubble that forces many into debt slavery, and military interventions abroad at the behest of major corporations (such as United Fruit Company in 1950s Guatemala and Halliburton in Iraq).

The fact is, without the enforcement arm of the state, the economic structure of production would be wildly different, perhaps even unrecognizable. Progressives tend to conflate the libertarian defense of free markets with a defense of the status quo, but nothing could be further from the truth. Unfortunately, some of the responsibility for this fallacy does lie within libertarians ourselves; our temporary alliance with the “right” has likely rubbed off on us in certain ways, and we do not present ourselves as honestly as we should. And then there are the beltway libertarians, who really are more like conservatives. Nevertheless, the libertarian tradition is fundamentally radical – 19th century individualist-anarchist Benjamin Tucker even called himself a socialist and belonged to the First International! Perhaps it is time we libertarians get back to our more radical roots.

I believe that there are many on the left who fundamentally want something similar to what we libertarians want: an immediate end to the privilege and entitlement of elite members of society at the expense of the rest of us.

The Fallacy Of “Creating Jobs”

Help Wanted

If you read the financial news or listen to anyone talk about the state of the economy, you almost certainly have heard about the virtues of “job creation”. Politicians are always talking about how many jobs this or that program they’ve spearheaded has created. The Bureau of Labor Statistics will release data saying that the economy added several hundred thousand jobs in the past month.

The way the term “job” is bandied around these days creates the impression that a job is a product, like a car or a computer. There is a perception that by pushing the right levers and dials, government policy can “create jobs” – the same way that a car company can produce a car. This ridiculous and false perception is responsible for numerous popular economic fallacies.

 

What Is A Job?

While it may seem like a silly question, it is important to pin down what exactly a job is. More importantly, why do we even want jobs?

A job is any arrangement where an employer agrees to provide some remuneration for a service provided by an employee. In other words, a job is just an interpersonal relation where someone is paying someone else to perform a task. In the case of entrepreneurs or the self-employed, the employee and employer can be the same person. Here is a definition provided by Adam Stover:

“A job is a voluntary contract between two parties, a capitalist and a laborer, to perform a service for an agreed-upon wage. This allows the capitalist or entrepreneur to take the risk of fronting the money to develop and make a product while the laborer assumes no risk and is paid regardless of profit or loss. A capitalist is a slave to the price structure in the economy, and these dictate whether she can turn a profit. The capitalist is speculating that his or her product will fetch a profit on the free market by satisfying consumer wants.”

This definition is important. From an individual perspective, the employee doesn’t care so much what they are doing so long as they get paid. Obviously people have preferences, such as preferring to work in one industry over another. What I mean is that the individual employee doesn’t determine what aspect of their work is important. It is up to the employer to decide where their employees’ efforts should be put to use on task X or task Y.

Let’s say a construction company hires some employees to do some digging. From the employees’ perspectives, it doesn’t matter whether they are directed to dig holes and fill them back up, or whether they should dig out a foundation for a building. They are paid to perform a task, and they are still doing their job.

But from the employer’s perspective, there is a very big difference between telling their employees to dig holes to fill back up or to perform meaningful work towards constructing a building. The goal of the employer is to maximize profits, and chances are good that their clients are interested in having them make a building, not to spin their wheels digging holes.

There is another critically important thing to consider in this analysis. Imagine that instead of a construction company in a complex, modern economy, we have an individual who has washed ashore on a deserted island. This Robinson Crusoe needs to “get a job” on the island. But he doesn’t work just in order to fill his time; he needs to transform the resources around him into things he can use to survive. For instance, he needs to build a shelter, catch fish, and so on.

In this case, you can see how the “employee” would in fact care about what he was doing for his job. He could still just dig holes and fill them back up, but what would that accomplish? It would be a waste of time and energy. It is important that Crusoe’s time and energy be used as efficiently as possible so that he can survive and perhaps even live comfortably.

And that’s the key point that is missing from the mainstream discussion of jobs. Reducing unemployment and “creating jobs” for as many people as possible is entirely beside the point. Hell, the Soviet Union boasted of having an unemployment rate of 0%! Clearly, the hullabaloo about jobs is at least partially misplaced.

What would happen if everyone were “employed” without actually producing? Keynes (in a different context) and his followers have legitimately suggested burying money in the ground and employing people by having them dig for it (or worse, digging holes and filling them back up; or worse than that, Paul Krugman’s suggestion of responding to a fake alien invasion). But obviously, if this were what people were doing, they wouldn’t be producing anything meaningful, and it isn’t economically justified.

Jobs are not what matter; the production of real wealth is. Jobs are a means to an end, not an end in and of themselves.

 

Unemployment And Unemployment Statistics

In a pure free market, there could be 0% involuntary unemployment. Other than people who choose to leave their jobs or to hold out working for higher pay, everyone would have a job.

There is always work to be done. So long as we live in a world of scarcity (certainly for the foreseeable future!), there will always be steps that people can take to improve their lives and reduce any perceived uneasiness. Therefore, were it not for some tiny percentage of people who are voluntarily unemployed, the unemployment rate in a free market should be zero.

As such, we can reasonably view the unemployment rate as a kind of measure of government failure – due to various policies instituted by government (which we will go into in more detail below), people who would otherwise be gainfully employed are now unable to find work. There is a disconnect between those offering jobs and those seeking them, and somehow government policy is getting in the way. The government and their statisticians have a very strong incentive to keep this number as low as possible.

Unfortunately, that means that the unemployment rate is a number that is used more for propaganda purposes than to convey accurate information about the state of the market. Bold claim, yes, but hear me out. Even Jim Clifton, CEO of Gallup, agrees.

There are a couple of ways the unemployment numbers and employment numbers/job reports are doctored or used in order to make the economic picture look rosier than reality. The two most important ways these numbers are misleading are:

  • The reported unemployment number does not include workers who are “discouraged”, in that they have given up looking for a job for whatever reason.
  • The number of jobs reported are aggregated, and thus the composition of the jobs is not emphasized despite being equally if not more important.

We’ll look at each of these in turn, but let’s start with the methodology for computing the unemployment rate. The rate that is normally reported is called the U-3 rate, but there are other measures as well, including the far more relevant U-6, which includes discouraged and marginally attached workers. This means that the U-6 is both a better representation of the actual state of the economy and it is significantly less optimistic.

John Williams of ShadowStats has a good overview of the methodology used in these job reports. He says:

“Up until the Clinton administration, a discouraged worker was one who was willing, able and ready to work but had given up looking because there were no jobs to be had. The Clinton administration dismissed to the non-reporting netherworld about five million discouraged workers who had been so categorized for more than a year.”

In other words, huge numbers of people who had previously been considered unemployed suddenly disappeared. As soon as you’ve given up and haven’t actively looked for work in the previous four weeks, you are no longer considered unemployed based on the U-3 measure.

If you work at least one hour per week and collect at least $20, you are no longer considered unemployed. Even if you would like to work more – and I think most people would – you would be considered employed from the perspective of the Bureau of Labor Statistics.

Not only that, but even people who are severely underemployed do not count as unemployed. If you have a PhD in chemical engineering but work ten hours a week at McDonalds, you are not unemployed.

Take a look at this graph of the labor force participation rate:

labor force participation rate

This number has clearly been plummeting for a while now. The unemployment rate has been steadily decreasing not because more people are working, but because more people aren’t working.

Take the December 2014 jobs report. The reported unemployment rate for that month was 5.6%. Only counting short term discouraged workers (those who haven’t looked for a job in the past four weeks), the unemployment rate was 11.2%. But if you include all discouraged workers (including those who stopped looking for work for over a year), the actual unemployment rate is 23%. Remember – this is how the unemployment rate was calculated prior to 1994. These are almost Great Depression level numbers!

To further demonstrate the absurdity of the current propagandistic unemployment numbers, let’s look at the most recent jobs report. As ZeroHedge reports:

“According to the most recent Bureau of Labor Statistics release, the UE (unemployment) rate fell to 5.5% as of February.  The last time the UE rate was this low was May of 2008.

What I’m fascinated by is the fact that the US population grew from February 2008 to February 2015 by 16.8 million persons, or a 5.5% increase in total population, and on a net basis, not a single one of those 16.8 million persons got a FT (full time) job… while a net 2.7 million were lucky enough to get a (or multiple) PT (part time) job.

This means that 14.3 million persons, or 4.4% of the current US population, were added without a single job among them (chart below).  This makes for fascinating math when a 4.4% increase of the total US population without jobs can nearly halve the UE rate down to 5.5%, equal to 2008’s UE rates?!?” [emphasis in original]

Also see more here and here.

Besides the outright manipulation and fudging of the numbers, the aggregation of the jobs numbers is incredibly misleading. By saying “X new jobs were added to the economy in February,” they are able to obscure the distribution of those jobs. If most newly “created” jobs are as part time waitresses and bartenders, this is very different from adding jobs as engineers or manufacturers.

So, how does this play out for the most recent jobs report, which claims that the US economy added 295,000 new jobs in February? Paul Craig Roberts brings up several inconsistencies in the jobs reporting numbers, but also has this to say about how the jobs are distributed:

“All of the goods producing jobs are accounted for by the 29,000 claimed construction jobs. The remaining 259,000 new jobs–90%–of the total–are service sector jobs. Three categories account for 70% of these jobs. Wholesale and retail trade, transportation and utilities account for 62,000 of the jobs. Education and health services account for 54,000 of which ambulatory health care services accounts for 19,900. Leisure and hospitality account for 66,000 jobs of which waitresses and bartenders account for 58,700 jobs.

These are the domestic service jobs of a third world country. ”

This aggregation creates the perception that certain actions reduce unemployment in a meaningful way when they do not. The government can institute some policy or “stimulus” package and then say “look how many jobs we’ve created for you!” This is all just a blatant lie.

Speaking of blatant lies, I only just recently learned that not only are the numbers themselves fudged in a highly misleading way, but the actual methodology used to find the unemployment numbers has serious problems as well. Now, the stated methodology used in the Household Survey (one of the ways that data is collected for finding the unemployment rate) is fine; the problem is that they don’t follow it. As the New York Post reports:

“Rather than collect fresh data each month as they are supposed to do, Census workers have been filling in the blanks with past months’ data. This helps them meet the strict quota of successful interviews set by Labor.”

And later on in the article:

“This whole controversy began when a Philadelphia Census worker, Julius Buckmon, was caught falsifying surveys and — most important — his wrongdoing was covered up.

Worse, Buckmon alleged that supervisors told him to cheat.

Other Census sources have also told me that data is falsified all the time. And since Census polls for lots of different government agencies, including the Justice Department, the problem could be bigger than anyone can imagine.”

Don’t trust the unemployment numbers. They have zero basis in reality.

 

Government Can’t Create Jobs

Politicians regularly try to convince the public that this or that policy initiative that they supported has created gazillions of new jobs, and that we should all be eternally grateful for the prosperity that their programs have brought us.

We’ve already gone over this on a more theoretical level in an earlier section; production is more critical than the number of “jobs” that exist, and a healthy economy ought to have people employed in the ways that best help satisfy consumer wants.

Government actions can certainly “create jobs” in the sense that policies can lead to people being employed in a way such that they would not have been absent government intervention. Think about all the jobs as Congressmen that wouldn’t have existed if it weren’t for government action!

This is all fairly obvious stuff, but extensive propaganda peddled by the likes of Paul Krugman has managed to convince most Americans otherwise. People think that government spending via “stimulus packages”, public works spending, and so on, can actually work to improve the economy and “create jobs”. But people fail to see that any newly created job that is due to government action is just a job that was taken away from someone else, somewhere else in the economy.

Think of it this way. Government can acquire the funds that they would use for any kind of “stimulus” in only three ways: increasing tax revenue, debasing the currency, or through deficits.

If the money is raised via taxation, then it is obvious how funds are simply being moved from one part of the economy to another. Rather than people getting to spend their money satisfying their own wants and leading to employment in those sectors, it is the government that gets to decide where this employment should be. Since the people get less choice, the economy is worse off.

If the funds are acquired via debasing the currency by printing money, there is a similar result, though it is more sneaky and hidden. Printing money does not cause new production to magically pop into existence, so again, all the government is doing is redistributing jobs and income – generally from the poor to the rich. Government prints money and then gets to decide where that money is spent, which will often include things like the military-industrial complex and huge bank bailouts. Jobs are being taken from those who are worst off and given to favored sectors of the economy.

The last way that government can raise revenue for its projects is via deficit spending. “We owe it to ourselves,” they say. But government borrowing increases the price of loanable funds by increasing demand for them, which then reduces the amount of investment done by the private sector. With less private investment, economic growth will be slowed, and there will be additional unemployment in those industries where loanable funds have been displaced from. Sorry Keynesians, but there ain’t no such thing as a free lunch.

No matter what the government does in an effort to “create jobs”, it will be a horribly inefficient failure. To take a recent example, let’s consider the American Reinvestment and Recovery Act, Obama’s “stimulus” bill. According to a study from the NBER, each new job “created” by the ARRA came at a cost of $170,000. Do you really think that’s how much these new jobs are paying?

 

How Government Creates Unemployment

As I mentioned earlier on, without government, there would be no involuntary unemployment. There are quite a few ways that governments get in the way of people successfully coming together in some kind of employment relation, and I’m surely missing a few. Nevertheless, abolishing all of the following would go a long way towards allowing as many people as possible to have some form of gainful employment.

Minimum wage. Somehow, the idea of the minimum wage simply refuses to die. Despite whatever many leftists may say, the minimum wage creates unemployment. It can be no other way. A minimum wage of $7.25 is like saying: “If you are willing to work for a wage lower than $7.25/hour, too bad, you’re not allowed.” People who would have been able to find a job for only, say, $5/hour (perhaps because they are disabled or completely inexperienced and not particularly productive) are no longer able to. I wrote an extensive post railing against the minimum wage here.

Unemployment “Insurance” (UI). I put the term insurance in quotes, because employment status isn’t something that is actually insurable. One can only insure against events that one has no control over…but I digress. Unlike the minimum wage, UI doesn’t directly eliminate the opportunity to find jobs. What it does do, however, is subsidize unemployment. If you lose your job, it creates an incentive for you to delay accepting a new one. Whether UI is a good policy or not is a separate question (I say bad), but it is certainly true that it increases unemployment.

Payroll taxes. Social Security and Medicare taxes that are deducted from your paycheck are another serious impediment to employment. Some people don’t realize that while they see a certain amount deducted from their pay, the employer is paying more as well. Of course, the entire burden of this taxation falls on the employee – whatever the employer pays the government is taken out of the employee’s wage. By taxing employment, the government creates less of it, just like any other tax.

Mandated employee benefits. When an employer is legally obligated to provide certain benefits to employees, this automatically raises the cost of hiring them. This would include things like worker’s comp, unemployment insurance (the employer must contribute to this), disability insurance, and leave benefits. The laws for these do tend to vary by state, but to the degree that these benefits are required, either wages decrease or hiring does.

Child labor laws. People under the age of 16 cannot work more than a certain number of hours, and they are forbidden from working in certain occupations. In general, youths under the age of 14 are forbidden from working in general (except in some agricultural jobs). While it is not politically correct to want to repeal child labor laws, it is a fact that child labor was decreasing rapidly before these laws came into effect. Many families depended on child labor in order to get by, but as prosperity increased, the need for children to work decreased. As with the minimum wage, it was the unions that lobbied most passionately for child labor laws; cheap child labor was competition which drove down wages.

Pro-union legislation. There is nothing inherently wrong with unions, but giving them powers that they wouldn’t otherwise have in a voluntary society is problematic. These laws transform what ought to be a simple matter of free association into the creation of what are effectively labor cartels. Labor unions do raise wages…but only for those who are members of the unions. But by raising wages for union members, labor unions reduce the number of employees that can be hired in general. In other words, it is a simple matter of rent-seeking behavior.

Comparable worth laws. These laws are based on the idea that men and women should receive equal pay when they perform work that involves comparable skills and responsibility or that is of “comparable worth” to the employer. Women often work in jobs that pay less than jobs that men take, and these are efforts to equalize this. Wage rates would get set not by market forces, but by a “scientific” analysis of what jobs are inherently “worth”. But by determining wages in this way, there are reduced employment opportunities for the women who people are attempting to help with these laws.

Mandated working conditions. This would include things like occupational safety regulations. Like other policies on this list, laws that require certain working conditions be met increase the cost of hiring employees. While everyone wants to be working in pleasant, healthy conditions, ceteris paribus, mandating that everyone get these conditions either leads to reduced wages or unemployment. The market itself was improving workplace safety before any of these laws were passed, so their negative effects were surely masked.

Laws that regulate firing employees. There are certain things that you cannot legally fire an employee for. Regardless of the positive intent behind these laws (not being able to be fired for discrimination, for instance), they create additional unemployment. These laws create an extra consideration before hiring any employees – there is a risk of being sued if you fire them. Consider laws against firing based on discrimination. If you fire a black man for any reason, you are at risk of being sued and having the employee claim it was discrimination. That risk makes you less likely to hire black people.

Occupational licensing. There are all kinds of occupations which you are not legally allowed to partake in without specific permission from government. Oftentimes this is done with the stated intention of improving consumer safety (say, by having doctors licensed). It is highly debatable whether licensing requirements actually make people safer (they don’t, and perhaps even reduce quality/safety), but it is clear that the real intent behind these regulations is rent seeking. After all, why are there licensing requirements for hairdressers, massage therapists, teachers, interior designers, or florists? If people could simply take a job or start a business without needing to pay a gazillion dollars for a taxi medallion or spend hundreds of hours in “official” cosmetology trainings classes, it would be significantly easier for many to find jobs.

The Federal Reserve. This one is a bit different from the others on this list, but no less important. The Fed, by inflating the money supply and setting interest rates below their market price, causes investors to think that there are more real resources available for investment than there actually are. As such, they sink their money into longer-term investments that there aren’t enough real resources available to complete. As such, there is eventually a crash, and resources need to get moved around to areas where they would be used more efficiently. This boom-bust process leads to workers moving into industries that they otherwise would not have, and then being forcibly dislocated from those jobs when it turns out they were economically unjustified. For instance, during the fracking boom, tons of people went into the energy industry and moved up to Minnesota for work – but as it comes crashing down, these jobs disappear. The same is true for, say, the housing boom. Or the dot-com bubble.

 

Conclusion

It is clear that almost every time you hear a politician or pundit utter the word “jobs”, you are being swindled or lied to.

Governments simply do not have the power to “create jobs”, no matter what anyone may tell you. The only thing governments can do is to destroy them by getting in the way of peoples’ own mutually beneficial relationships. And then lie to you about it.

Private Cities: Does Honduras Prove That Libertarianism Doesn’t Work?

Private cities

I recently came across this article on Salon, which argues that a libertarian experiment that is going on in Honduras proves that libertarianism does not work. Frankly, I was only vaguely familiar with whatever is going on in Honduras, but the line of reasoning sounded to me a lot like the “well why don’t you go live in Somalia, then?” kind of argument.

Typically, arguments like this are just absurd straw men, like when liberals will point to the problems in the US health care system and say “See? Look how terrible the free market is!” So I began to do some research on the situation on Honduras to see if this is just another case of completely misunderstanding what libertarianism is or what free markets are.

So, what is actually going on in Honduras? In July 2011, the Honduran government amended their constitution to allow for the establishment of ZEDEs (Zones for Employment and Economic Development) with the intention of tackling poverty and improving the economy. There has been all sorts of legal drama with getting the project rolling, including an October 18, 2012 decision by the Honduran Supreme Court that the prior amendment was unconstitutional (on May 26, 2014, the new Supreme Court gave the ZEDE project their blessing). I’m sure there was some corruption and shady dealings involved in making this all happen, but here we are. It is not my intention to go through a complete history of how this idea is playing out in Honduras, but Brian Doherty at Reason has done a good job covering this here. As stated in an editorial in Honduras Weekly:

“It’s very important for all of us to understand, especially libertarians, that the new Honduran jurisdictions haven’t been designed to please the libertarian taste. The ZEDEs (or LEAP zones) are an experiment that aims to solve an [sic] social and economic crisis, to help Honduras overcome underdevelopment and fast-track the path to prosperity. If everything goes well, they will also serve as an example for the rest of the world, making Honduras a pioneer and reference point for an idea with huge development potential.”

It is critically important to note that these ZEDEs are semi-autonomous zones, sort of like Hong Kong is to China. They will still be considered a part of Honduras, but will have differing legal and economic systems. Basically, Honduras sells land to some investors, and then that land is no longer subject to the laws of Honduras or “protected” by Honduran police. The investors must establish their own government, contract out for their own police forces, and decide on whatever other laws the area will have. Note that other than the decentralized nature of the scheme, there is nothing inherently libertarian about it; some wealthy communists would be more than welcome to buy up land and set up their own communist utopia there. In addition, none of these ZEDEs have actually been implemented yet.

Enter Edwin Lyngar, author of the Salon article in question. If you actually read through his piece (and it is fairly short), you’ll see that he is speaking as though Honduras (all of it) is some kind of libertarian dream world. Never mind the fact that the actual ZEDEs have yet to exist, and never mind the fact that Honduras is one of the less economically free countries on the planet, as evidenced by their ranking 116th out of 178 nations in Heritage’s Index of Economic Freedom.

In other words, the entire basis of his critique rests on a complete lie.

Nevertheless, I think it is worth delving into Honduras a bit more deeply and to respond to a few of Mr. Lyngar’s specific points.

 

Critique Of The Critique: A Comedy Of Errors

Mr. Lyngar’s article is full of ridiculous inconsistencies and a clear lack of understanding of what libertarianism actually means. Consider his description of libertarianism, which he claims to have been an adherent of not long ago:

“In America, libertarian ideas are attractive to mostly young, white men with high ideals and no life experience that live off of the previous generation’s investments and sacrifice.  I know this because as a young, white idiot, I subscribed to this system of discredited ideas:  Selfishness is good, government is bad. Take what you want, when you want and however you can.  Poor people deserve what they get, and the smartest, hardworking people always win.  So get yours before someone else does.”

Most libertarians wouldn’t claim that “selfishness is good”, except in the context of the invisible hand. In that case, peoples’ selfishness does in fact lead to better outcomes. Even most liberals will agree with this to some extent.

The number of libertarians who would tell you to “take what you want, when you want and however you can” is zero. Not a one. If a “libertarian” were to say this, then by definition they would not be a libertarian. You see, stealing stuff is one of those little things that libertarians are in fact against. Gasp!

Unfortunately, some libertarians may say that “poor people deserve what they get,” but they are misguided. In my experience, it tends to be conservatives who would say things like this, and some of the more libertarian-leaning Republicans, but rarely libertarians. In the case of libertarians who say this, they usually would retract it within a couple months, when they become an anarchist and better understand the idea of crony capitalism.

No libertarian would say that the smartest or hardest working people (or most other adjectives) will always win. Those are certainly advantages, but it tends to be those who are most “alert” in the Kirznerian sense who we would say are most likely to “win” in business.

And libertarians don’t believe that the economy is a zero-sum game. You need not “get yours before someone else does.” Those who are most successful in a free market are those who create the most value for others, so “getting yours” means helping as many other people as possible.

Despite claiming to have been a libertarian, it is clear that Mr. Lyngar hasn’t the slightest clue what he’s talking about. Either that, or he is being deliberately misleading, which is far worse. Moving on…

“In Honduras, the police ride around in pickup trucks with machine guns, but they aren’t there to protect most people.  They are scary to locals and travelers alike.  For individual protection there’s an army of private, armed security guards who are found in front of not only banks, but also restaurants, ATM machines, grocery stores and at any building that holds anything of value whatsoever.  Some guards have uniforms and long guns but just as many are dressed in street clothes with cheap pistols thrust into waistbands.”

Let me get this straight: people find the government police scary and useless in protecting people, but private security is taking up the role of protecting things of value…and somehow, this is supposed to reflect poorly on libertarian ideas?

“The country has a handful of really rich people, a small group of middle-class, some security guards who seem to be getting by and a massive group of people who are starving to death and living in slums.  You can see the evidence of previous decades of infrastructure investment in roads and bridges, but it’s all in slow-motion decay.”

Bob Wenzel did a good job tearing this down. What are some major causes of income inequality? High minimum wages and oppressive regulations.

“Honduras has the most complex minimum wage laws I have ever seen. Take a look for yourself. As far as starting a business, the World Bank lists it as extremely difficult to do so in Honduras, with a rank of 138 out of 189 countries. Which is to say nothing about its ranking for Enforcing Contracts  (166).”

And Mark Lutter says:

“The basic problem is that Honduras, along with many other third-world countries, does not have functioning courts or police. Nor do they have basic rights to engage in commerce with others. If a Honduran wants to start a business, he must pay 39 percent of his per capita income, and he must wait 82 days to get the requisite construction permits. Economic growth is not possible without the creative destruction that comes with new businesses.”

And I’d like to add that the decaying infrastructure reflects the weaknesses of government, not of private industry. While on the subject of infrastructure, Mr. Lyngar effectively brings up the question that every libertarian knows all too well: but wut about muh roads?!?! Here he is describing his drive along some Honduran roads:

“The word “treacherous” is inadequate—a better description is “post-apocalyptic.”  We did not see one speed limit sign in hundreds of kilometers.  Not one.  People drive around each other on the right and left and in every manner possible.  The road was clogged with horses, scooters and bicycles.  People traveled in every conceivable manner along the crumbling arterial.  Few cars have license plates, and one taxi driver told me that the private company responsible for making them went bankrupt.  Instead of traffic stops, there are military check points every so often.  The roads seemed more dangerous to me than the gang violence.”

Yet again, as is so often the case in anti-libertarian polemics, Mr. Lyngar conflates government failure with market failure. This “post-apocalyptic” picture of the roads in Honduras is yet another demonstration of the failure of government to maintain adequate infrastructure. He continues:

“The greatest examples of libertarianism in action are the hundreds of men, women and children standing alongside the roads all over Honduras.  The government won’t fix the roads, so these desperate entrepreneurs fill in potholes with shovels of dirt or debris.  They then stand next to the filled-in pothole soliciting tips from grateful motorists.  That is the wet dream of libertarian private sector innovation.”

When the government fails, the private sector needs to pick up the pieces. While I’ve personally never had a wet dream about entrepreneurs filling in pot holes (although I’m sure there would be some great Freudian dream analysis of this), I do respect these instances where people who are clearly victims of government go out and try to make the best of a bad situation.

“A member of the small, dwindling middle class, Alberto objects to his city being labeled the most dangerous in the Western Hemisphere.  He showed me a few places in the city that could have been almost anywhere, a hipster bar, a great seafood place (all guarded by armed men, of course).  Alberto took me on a small hike to a spot overlooking the city and pointed out new construction and nice buildings.  There are new buildings and construction but it is funded exclusively by private industry.  He pointed out a place for a new airport that could be the biggest in Central America, he said, if only it could get built, but there is no private sector upside.” [emphasis mine]

Are you noticing a theme here? Time and again, the author is lambasting libertarians and their free market beliefs, yet pointing to evidence of how the government has been an utter failure and that the private sector is the only bright spot in the country. With regards to the airport, he seems to be ignoring the reasons why one might choose to undergo or withhold a huge investment project. Why is there no upside? Perhaps it would be too dangerous, and gangs would shoot down planes or destroy the infrastructure. If that is the case, then building an airport is clearly an idiotic idea, whether done by the private sector or through government investment.

Later on in the post, Mr. Lyngar begins to get more abstract and attempt to find some fatal flaw in libertarianism.

“One can dismiss the core of near-sociopathic libertarian ideas with one simple question: What kind of society maximizes freedom while providing the best outcomes for the greatest number of human beings?  You cannot start with the assumption that a Russian novel writer from the ’50s is a genius, so therefore all ideas about government and society must fit between the pages of “Atlas Shrugged.”  That concept is stupid, and sends you on the opposite course of “good outcomes for human beings.”  The closer you get to totally untamed, uncontrolled privatization, the nearer you approach “Lord of the Flies.””

There is very little substance here outside of the question he brings up. That being said, his question about how to devise an ideal yet practical society is seriously flawed. For starters, libertarians believe that a more libertarian society would be the answer to his question, so it is unconvincing. But more fundamentally, he is appealing both to maximizing freedom AND a utilitarian goal, and it is not clear that the two are compatible. What criteria is used to determine which of those two values wins out when they conflict? By definition, there must be an appeal to some third value which goes unmentioned. If not, then it would appear that he is just saying that utilitarianism wins (or maximizing freedom wins, but clearly this is not his point). And if that is the case, then we must dispense with the idea that maximizing freedom is relevant at all to his analysis. By the way, the “third value” I refer to above is in almost all cases “what I think is best” for any non-libertarian.

“Society should not exist to make a few people fabulously wealthy while others starve.  Almost all humanity used to live this way, and we called it feudalism.  Many people want to go back to that sort of system, this time under the label of libertarian or “the untrammeled free market.”  The name is irrelevant because the results are the same.  In Honduras, I did not meet one person who had nice things to say about the government or how the country is run.  My takeaway from the trip is that living in a libertarian paradise satisfies only a few of the wealthiest citizens, while everyone else thinks it sucks.”

Actually, Mr. Lyngar, the name is highly relevant, because feudalism and “the untrammeled free market” are entirely different things. Feudalism is one of those terms that doesn’t have a precise definition, not unlike “terrorism“. Here is one of the most popular definitions of the term, according to Wikipedia:

“The classic François-Louis Ganshof version of feudalism describes a set of reciprocal legal and military obligations among the warrior nobility, revolving around the three key concepts of lords, vassals and fiefs. A lord was in broad terms a noble who held land, a vassal was a person who was granted possession of the land by the lord, and the land was known as a fief. In exchange for the use of the fief and the protection of the lord, the vassal would provide some sort of service to the lord. There were many varieties of feudal land tenure, consisting of military and non-military service. The obligations and corresponding rights between lord and vassal concerning the fief form the basis of the feudal relationship.”

The vassal performs military service in exchange for a piece of land, and the peasant/serf worked the land in exchange for protection. In what way does this have any relation to the free market? The free market is just the absence of restrictions upon trade and production. Mr. Lyngar is comparing apples and oranges.

He also claims that no one had positive things to say about the government, as if this somehow is an argument against libertarianism. Typical. In the final paragraph of an otherwise incoherent mess of an article, Mr. Lyngar says something that is on the money:

“There can be no such thing as freedom, safety or progress of any kind, when an entire society is run for the benefit of a handful of rich assholes and global conglomerates.”

Maybe the author is a libertarian after all!

 

Can Private Cities (ZEDEs) Save Honduras?

Now that I’ve thoroughly rebutted Mr. Lyngar’s childish critique of libertarianism, it is time to turn to the actual (and far more interesting!) political changes that Honduras is in the process of implementing. Before demonstrating why the idea of private cities would be incredibly beneficial, let us first set the scene of modern Honduras. According to Brian Doherty:

“The small Central American nation, wedged between the Pacific Ocean and the Caribbean, is the murder capital of the world, with the U.N. reporting over 80 homicides per 100,000 people in 2011, compared to slightly over 30 in Colombia and under 10 in the United States. Its average annual income of $4,300 per capita is below that of the Congo. According to the U.S. Agency for International Development, 65 percent of its people are living in poverty. The World Bank ranks Honduras 125 out of 185 on its “ease of doing business” list, below Uganda.”

This data is from a couple years ago, but not much has changed. According to the CIA World Factbook, Honduras:

  • is the 2nd poorest country in Central America
  • had a per capita GDP (purchasing power parity) of only $4800 in 2013
  • under-employs about one third of the population
  • has a poverty rate of 65%
  • has a life-expectancy at birth ranked 147th in the world

Furthermore, Honduras has been ravaged by the US government’s War on Drugs, which is largely responsible for the absurdly high murder rate and drug cartel power. It has also been a major factor in the endemic corruption within the Honduran government.

In other words, modern Honduras is not a pretty picture (other than the beautiful landscapes, of course). This is the environment that the ZEDE experiment is entering. There is no guarantee that the experiment will be a success; it is not unreasonable to think that, considering the rampant corruption, it is possible that the ZEDEs will be used to enrich the already wealthy politicians and their friends. Only time will tell if the ZEDEs will actually help lift the masses of Hondurans out of poverty; a poor implementation of this experiment is likely to fail.

But if the ZEDE experiment is implemented properly, we have every reason to believe that it could be just as successful as Hong Kong was at lifting huge numbers of people out of grinding poverty, even in a fairly short period of time. And considering how Honduras is already so poor and in such bad shape, there really is very little to lose by trying.

The Advantages Of Private Cities

I have already described the moral reasons why the freedom of association that private cities can bring would be massively beneficial (see: Do You Have Opinions About Things? Then You Should Be An Anarchist). If you want a more theoretical justification for the morality of this type of arrangement, that article is the place to be. For our purposes here, I will be focusing on the more utilitarian, material benefits of private cities.

There are three primary advantages that private cities have over government owned cities:

  1. Privatizing cities will help “internalize” externalities and provide “public goods” in a superior fashion,
  2. Private cities are less at the whim of interest groups, and
  3. Private cities are more likely to serve the poor

Most non-libertarians would find each of these advantages surprising, so I will explain each of them in turn.

Internalize Externalities And Superior Provision Of “Public Goods”

Externalities are one example of something that many consider a “market failure“. They occur when the total social cost of some action is not contained within the monetary cost of the action. The most common example would be pollution; when a factory pollutes, they do not bear the cost of the pollution – it is disbursed over the people who are harmed by the pollution. As such, as the theory goes, the factory will end up producing more than the socially optimal level, because the cost of pollution isn’t factored into their production process.

Without going into too much detail about this theory, I claim that this externality is the result of a lack of private property. The pollution is actually a violation of the property rights of the victims of the pollution. If these people could make a legal claim that the factory has infringed on their property rights, the externality would be internalized. A more thorough discussion of this will need to be saved for another time; for now, let us restrict this discussion to the benefit of private cities in this regard.

Similarly, a “public good” is one that, as the theory goes, would not be produced in optimal levels by the free market. These include things like utilities, national defense, police, and so on. When you get down to it, both so-called public goods and externalities are very similar “problems”. In both cases, private property is the solution.

Consider a mall, which is typically owned by a someone who rents out space as their source of income. The mall owner has a very strong incentive to increase the value of the space in this mall and thus collect a larger income. How can they do this? By providing “public goods” such as security, parking, and nice open spaces within the mall. Each individual store owner may not have much of an incentive on their own to provide security, but the owner of the mall may find it necessary in order to get people to rent out space.

Private cities can do something very similar. If a private company is tasked with developing a profitable private city, they have an incentive to provide quality schooling, security, parks, roads, waste disposal, etc. All of these services will increase the value of the land that this company owns, and will thus increase its own revenue.

But publicly owned cities have no comparable incentive. Yes, a government that does a poor job could potentially get voted out of office, but this is still far less responsive than that of competing private cities. This is why roads tend to be shitty almost everywhere (not just in Honduras!), and why police can get away with murder and abuse fairly easily.

It’s hard for people to imagine what private cities would look like, which is understandable. Probably the closest examples of this kind of arrangement are Letchworth and Welwyn, which were small cities founded on Georgist principles. They were nationalized after World War 2. You can also kind of consider Disney World in the same vein. Another approximation of a private city would be that of Sandy Springs, Georgia, which outsourced most of its public services to private companies after going bankrupt, which improved these services at a lower cost. Note that this is still a far cry from actual private cities, which would provide public services even better than mere outsourcing would.

Less Influence From Interest Groups

Public cities are basically tools of interest groups.

There is a huge incentive to lobby the local government to enact rules that would help certain businesses at the expense of others, and of the common welfare in general. It is also far more likely to lead to policies that are simply dumb and self-destructive.

Rent control is a perfect example of a horrible policy that nearly all economists agree will basically destroy a local economy, but many cities will implement rent control laws because they sound nice. Zoning laws can be used by certain businesses in order to harm their competition by making their rent more expensive, forcing them to move, and preventing them from existing in the first place.

The most obvious case of interest group domination is the current battle between Uber and various local taxi cartels all over the world. Many cities are banning Uber, which generally provides superior service at much lower cost, in order to appease the powerful local taxi services.

In private cities, while anything is possible, there is a strong incentive not to implement stupid policies. If there are two competing cities, one with rent control and one without, the city without rent control will almost certainly be more successful (i.e. profitable). Similarly, zoning laws could be implemented, but the city owner will need to pay for whatever cost this imposes upon him, unlike the public city, which can rob the taxpayers to pay for it. So if one private city implements zoning laws that ban strip clubs, for instance, the owner will pay the cost of this decision (residents who like strip clubs won’t want to live there, etc.) as well as reap the benefits (more socially conservative people will want to live there, etc.).

Private Cities Help Serve The Poor

This is surely the one that would most surprise readers. Most people imagine that private cities will become tyrannical little enclaves of the rich trying to escape or take advantage of the poor. And most certainly, some would in fact be like this.

But when you consider how terribly American cities are treating their homeless people, it amazes me how this idea persists. Capitalism is about mass production; while there is certainly a market for serving the wealthy, there is a much larger market and plenty of profit to be made serving the middle and lower classes.

Wealthy communities tend to already have high property values and quality provision of public goods. But the potential for profit from serving lower income communities is drastically higher. Land value is cheap in poor communities, and has much more room for growth.

How could private cities better serve the poor? For one thing, a regime of several competing private cities will drive the cost of living down as the cities compete for residents and investment. This benefit cannot be overstated, because the amount of fraud, waste, and abuse in many cities is extraordinary, particularly in the third world.

It’s also highly unlikely that private cities would “exploit” the poor, considering the fact that in most proposals, the land that forms the city is largely uninhabited. Poor people aren’t going to be forced to move there and be exploited (unless, of course, the government forces them). On the contrary, a major benefit of private cities is that they will have better rule of law than the more corrupt areas of the country, which gives poor people a more safe and stable place to migrate to.

And private cities need not be run by “evil corporations”. They can experiment with social and legal rules. Some of them could mimic the Israeli kibbutzim, if socialism is more your cup of tea.

 

Conclusion

In short, the experience of Honduras in no way proves that libertarianism doesn’t work. The proper lessons to be learned from the Honduran experience are primarily about the incredible failure of some governments to provide good institutions that create a healthy economy and social system.

Honduras is in the process of implementing a project that is akin to the formation of competing private cities, and if implemented well, should lift many poor Hondurans out of poverty. Hopefully corruption and cronyism doesn’t ruin the experiment. Ultimately, only time will tell.

The Economy Through The Eyes Of A Keynesian

In response to a recent comment by reader RHCP, I was looking into the concept of a “post-scarcity” society. One of my friends has brought this up repeatedly in our many debates, but I have yet to find a good, thorough explanation or argument for the concept. If you know of any good academic papers or long-form articles explaining post-scarcity economics, please post them in the comments below.

While I did some searching around, I came across this article, misleadingly called “Post-Scarcity Economics”, from the LA Review of Books, July 2013. While not what I had expected, it turns out I had come across one of the better depictions of Keynesian economics that I’ve ever seen – and I felt compelled to respond.

The author, Tom Streithorst, seems to be defining a post-scarcity world as one where demand is outstripped by supply – the productive capacity of a society being significantly higher than the actual demand for goods. In other words, a classic Keynesian problem of under-consumption/overproduction.

My intention in this post is to methodically go through his arguments, deconstructing the many fallacies that Keynesians are prone to fall prey too. Because I am responding to his points in order, my subheadings in this post will admittedly be somewhat arbitrary, so I apologize.

 

Supply, Demand, And Scarcity

Mr. Streithorst begins:

“WE LIVE LIKE GODS, and we don’t even know it.

We fly across oceans in airplanes, we eat tropical fruit in December, we have machines that sing us songs, clean our house, take pictures of Mars. Much the total accumulated knowledge of our species can fit on a hard drive that fits in our pocket. Even the poorest among us own electronic toys that millionaires and kings would have lusted for a decade ago. Our ancestors would be amazed. For most of our time on the planet, humans lived on the knife-edge of survival. A crop failure could mean starvation and even in good times, we worked from sun up to sundown to earn our daily bread. In 1600, a typical workman spent almost half his income on nourishment, and that food wasn’t crème brûlée with passion fruit or organically raised filet mignon, it was gruel and the occasional turnip. Send us back to ancient Greece with an AK-47, a home brewing kit, or a battery-powered vibrator, and startled peasants would worship at our feet.”

This is a great start, and one of very few items on which we agree. What is described here is the result of a miracle of sorts – through the accumulation of capital over the past several hundred years, the collective productive capacity of humanity has increased to such an extent that our lives would be unrecognizable to our ancestors.

The development of capitalism has lifted the masses out of poverty and provided us with luxuries that people could only dream of a couple hundred years ago.

“And yet we are not happy, we expected more, we were promised better. Our economy is a shambles, millions are out of work, and few of us think things are going to get better soon. When I graduated high school, in 1975, I assumed that whatever I did, I would end up somewhere in the great American middle class, and that I would live better than my father, who lived better than his. Today, my son doesn’t have nearly the same confidence. Back in those days, you could go off to India for seven years, sit around in an ashram, smoke pot and seek spiritual fulfilment, and still come home and get a good job as a copywriter at Ogilvy and Mather. Today kids need a spectacular resume just to get an unpaid internship at IBM. Our children fear any moment not on a career path could ruin their prospects for a successful future. Back in the 1970s, pop stars sang songs about of the tedium and anomie of factory work. Today the sons of laid-off autoworkers would trade anything for that security and steady wage.”

Again, no argument here. In the past thirty years or so, things seem to have changed. While I wouldn’t say that progress has stopped, something is certainly “off”. The cause of this change – and the solution – are where our views diverge.

“On the one hand, technology has made us all much more productive than we were 30 years ago. On the other, jobs have evaporated. Steel that used to require hundreds of men to manufacture now can be made with a dozen. A small businessman no longer needs to hire a secretary or a bookkeeper. Inexpensive software and a personal computer lets him do their jobs in a fraction of the time all by himself. The internet puts specialist knowledge that used to be almost impossible to find instantaneously on our laptops. The personal computer is doing to the office worker what the internal combustion engine did to the horse a century ago, making him obsolete.”

These are all facts, but Mr. Streithorst seems to be interpreting this all as a bad thing. This is one of the most common economic fallacies I hear, and it just doesn’t seem to die.

According to his worldview, improvements in technology eliminate jobs, leading to higher unemployment. Woe are the former bean counters who can no longer afford to eat because modern contrivances such as spreadsheets and Quicken have made them obsolete (in some contexts)! As technology progresses, more and more jobs become obsolete, more and more people become unemployed, and suddenly we have problems which require government to come in and fix things.

But if this were accurate, would not the world be a better place (economically speaking) if we rolled back technology a bit? Think about the masses who could be employed if we didn’t have giant machines that can dig massive holes and we needed to go back to good ol’ shoveling! And why lament the single bookkeeper who loses his job while ignoring the millions whom were never employed by the greedy small businessman in the first place? Wouldn’t it have been more effective to force him to hire two, three, or a thousand accountants in order to create jobs?

Technology doesn’t take away from some abstract pool of “jobs”. On the contrary, technology frees up resources that were being used in a less efficient way so that they can be employed more effectively elsewhere. Yes, the “seen” effect is the laborer losing his job to a robot, but what is “unseen” is that the pool of real resources has increased, leading to greater prosperity for all. Again, the miracle of capitalism that we began with.

We may feel sympathy for the worker who loses his job to technological improvements and the hardships he may face because of this. But this is simply the way the world works – were we to use the force of government to “rectify” the situation, we would simply condemn ourselves to the backwards, brutish existence of our technologically inferior ancestors.

“It is a paradox: our ever-growing productivity and our more insecure lives. Our understanding of economics is stuck in the past, in a world of scarcity, a world without advertising, where making things rather than selling them was the fundamental economic problem. Technology and the free enterprise system, to an extent that would amaze our ancestors, have solved much of the problem of supply. Our homes are more solid, our clothes more fashionable, our food tastier than our grandparents would have dreamed. In a world where even the residents of housing projects own more computing power than NASA did when they put a man on the moon, we cannot think that making stuff is the problem.”

Here, Mr. Streithorst introduces his conception of post-scarcity. Look at all the cool things we have available! We have more than enough supply of goods and services!

I don’t dispute the fact that we’ve made amazing strides in the process of production that has led to an increased supply of goods. But saying that we’ve “solved much of the problem of supply” is a bit premature. In fact, the only way something could be post-scarce, or have no supply “problem”, is if everyone could get as much of that good as they would like at no cost. This may be true for, say, air under normal circumstances, but it is clearly false with respect to nearly anything else.

How this is not trivially obvious to everyone is beyond me. We may have a vastly larger food supply than our ancestors, but people are still starving. People still need to buy food – it doesn’t just manifest itself whenever you want it. He continues:

“Ask any entrepreneur, and he will tell you making stuff, be it specialty steel, a low budget movie, saltimbocca a la romana, a collateralized loan obligation, a back massage, or an oil tanker is the fun part. It is selling it that keeps you up at night, breaks your heart, drives you into bankruptcy. That is why salesmen get paid more than engineers. Our problems today are purely problems of demand.”

Ignored is the crucial question: what is it that ought to be produced in the first place? I could vomit into a jar fairly easily, and yes, trying to sell that vomit would indeed be the difficult part of my fictitious business model. Mr. Streithorst would like you to believe that the problem lies in the fact that there isn’t enough demand for my vomit.

Clearly, this is absurd. We can produce many things, but people only value some of them, and only to a limited extent. The point of economics is to study how resources are allocated in the face of scarcity. Ideally, resources will be used as efficiently as possible in order to produce goods that are in the highest demand. Keynesians seem to think the problem is to create demand for already existing products, but this is not the way to a healthy economy. Instead of finding a way to create demand for my vomit, a good economic system will try to dissuade me from selling my vomit, and instead to devote my energies to creating real value for others.

“Picture an empty restaurant. The maître d’ standing by the till, faking confidence, trying to will customers through the door. The waiters sweeping nonexistent breadcrumbs from immaculate tablecloths. The sauces are prepped, the fish purchased at dawn glisten, waiting to be pan-fried. A couple approaches, peruses the menu, looks through the window, and walks away. The chef runs numbers in his head, calculating how much money he owes, how he can manage to meet his next interest payment. All that preparation, all that investment, all that energy and potential, for nothing. Until a customer decides to spend his money, it is for naught. Marx knew it. Keynes knew it. More to the point, every businessman knows it. Lack of demand is the Achilles heel of modern capitalism.”

This is a sad story, of course. But let me change it ever so slightly; imagine that when the couple looks at the menu, they see “Vomit: $50”. Read through that last paragraph again. No longer so tragic, right?

In real life, of course the restaurant isn’t serving vomit, but in this case, they may as well be. Resources have been used to create this restaurant, but people don’t actually value what the restaurant provides. For whatever reason(s), consumers are not being satisfied by this restaurant – and yet the restaurant continues to use society’s limited resources.

Lack of demand isn’t the problem; the waste of resources on creating a product that people don’t want is what’s wrong with this picture. The solution? The restaurant suffers losses, eventually goes out of business, and liquidates its assets. When the assets are sold off, hopefully they will be used in a way that is more satisfying to consumers.

 

Business Cycles And Aggregate Demand

“A recession, by definition, is a lack of aggregate demand, an unwillingness of firms and households to consume as much as the society can produce. It is a sign of the incredible capacity of capitalism that our fundamental problem is we make more stuff than we want to buy.”

No, Mr. Streithorst, the problem isn’t that we make more stuff than we want to buy. The problem (in a recession) is that we have been making the wrong stuff to begin with.

A simple example will help illustrate this. Let’s say there are a certain amount of building materials at a construction site (and we’ll assume that more cannot be procured). The blueprint that the manager is using to construct the new building requires more resources to complete than are actually available. In this case, the sooner the manager realizes that he can’t construct the building as designed, the better. The longer that construction continues, the more time and resources are wasted on a project that is destined to fail. But when the construction stops (good thing), the construction workers will be temporarily unemployed as the architect revises the blueprints (“good”/necessary, but unfortunate).

A recession is not simply a matter of overproduction that can be resolved by encouraging people to spend. Rather, it is the healthy process of unwinding the malinvestments created during the previous boom phase, like the building with insufficient materials.

For more on how the business cycle works and why it exists, see this, this, and this.

“The empty restaurant, writ large, is the predicament of the world economy today. No war, no hurricane has destroyed the productive capacity we had during the halcyon days of the boom. But consumers are not spending, firms are not hiring, households are paying off debt, corporations are sitting on piles of cash, banks are cautious about lending, and governments are hoping to reduce their deficits.”

Again, this is stated as though the behavior of the actors in this situation is a bad thing. Oh no, people are paying off their debts! Banks with shaky finances aren’t throwing money at anything that breathes – are they mad?! Consumers are being frugal during hard times – what boneheads! Corporations aren’t investing in risky projects during uncertain economic times – how dare they?

The scenarios described here are simply the prudent decisions that ought to be made when an economy is in recession. You wouldn’t advise someone who just lost their job to buy a Mercedes, would you? But this is exactly what the Keynesians would have you do.

“Indeed, solving the problem of demand has been the essential capitalist dilemma of the past 80 years. As productivity rises, we can make more with the same level of inputs. Demand has to rise just as fast or the economy shrinks. For an economy to be at full employment, demand needs to equal the society’s productive capacity. If it does not, then supply will shrink to meet demand and millions of workers will become redundant. To achieve full employment, we must find a way to instead push demand up to meet the economy’s productive capacity. Since the Great Depression, we have solved this problem of demand three different ways: war, rising wages, and debt.”

The most absurd sentence in this excerpt: “Demand has to rise just as fast or the economy shrinks.” Let’s try to unpack this. Some sort of change happens, leading to increased productivity. Previously, each worker could produce one widget per day, and now they can produce two. If the demand for widgets does not also double, then half of those employed in widget production will lose their jobs.

This is all true so far as it goes. But the Keynesian takes it one step further by claiming that this kind of situation can happen economy-wide, leading to a glut in production in general. The market is flooded with goods that people simply don’t have the resources or will to demand (buy). In other words, there is more production in ALL fields of production than exist resources to use in order to consume these products.

But how can this be possible? Ultimately, we produce solely in order to consume. In order to “demand” something, one must first supply something else to exchange it for. When you produce something, you necessarily become either the consumer of your own production, or you use your product to exchange for someone else’s which you will consume. It is simply impossible for there to be a general state of overproduction/under-consumption. This is not to say that there can’t be overproduction of a specific kind of good – remember my vomit example. That vomit is overproduced, but this is balanced out by some other good(s) being under-produced. To quote David Ricardo:

“Productions are always bought by productions, or by services; money is only the medium by which the exchange is effected. Too much of a particular commodity may be produced, of which there may be such a glut in the market as not to repay the capital expended on it; but this cannot be the case with respect to all commodities.”

This is the famous and controversial Say’s Law – one which Keynes was quite proud of himself for “refuting”. Of course, he did nothing of the sort. This is an incredibly important point, so I strongly suggest you read Hazlitt’s discussion of Keynes’s failure to understand Say’s Law properly. I have not covered every angle of it here, but Hazlitt does a great job of addressing common misconceptions about this subject.

Mr. Streithorst continues:

“According to conventional models, long-term unemployment was inconceivable. Most economists at the time believed that markets, if left alone would inevitably self-equilibrate. Unemployment would drive wages down until, at some certain level, workers would be so cheap to hire that once again, men would be put to work and growth could return.

Keynes saw the fallacy in this reasoning. He recognized that workers, after all, are also consumers. Drive down their wages, you also drive down their ability to purchase goods and services. Lowering wages was no panacea; it would just knock demand even further down.”

It is certainly true that decreasing wages will necessarily drive down workers’ ability to purchase goods and services. The Keynesians believe that this leads to a downward spiral in aggregate demand: some workers become unemployed, they spend less money, the businesses that the original workers would have spent money on lose revenue and need to lay off some of their own workers, who then can’t spend as much, and so on.

But why wouldn’t wages simply decrease enough until employment reached a new equilibrium? According to Keynesians, it is because wages are “sticky” – there is an inherent resistance to decreasing peoples’ nominal wages. For some reason, this doesn’t apply to real wages; it is assumed that someone will not accept a nominal pay cut from $10/hour to $8/hour, even if the price level deflates by 20% or more – as though workers are too dumb to assess their own financial situation.

Besides the fact that this is mildly insulting to employees, it is also not the whole story. For starters, wages are made sticky in large part by government policy and is not an inherent feature of the market; for instance, during the Great Depression, Hoover forcefully intervened in business and did not allow them to cut wages. The most obvious other way is through unemployment benefits, which subsidize workers who choose to hold out for higher wages for a longer period of time. On top of that, there are unions, whose bargaining power allows them to hold wages above equilibrium levels.

One must wonder why wages would be sticky but other prices wouldn’t be. For instance, store owners doesn’t seem to have a problem with decreasing the price of the products that they sell if they need to move their inventory, even though the prices they charge are precisely the revenue that they bring in. If someone makes their money selling hot dogs and is willing to drop the price of hot dogs, why would a worker be unwilling to take a pay cut?

To be fair, wages are sometimes made sticky due to contractual obligations. That being said, many contracts stipulate that pay can indeed be adjusted based on circumstance, and most people aren’t hired at the same time, so contracts will expire on a rolling basis, allowing pay to be adjusted. In addition, most contracts aren’t in force for longer than a year, so for them to be a significant force, there would need to be a substantial change in demand in a fairly short period of time.

 

Economic History Since World War 2

“World War II finally ended the Depression and proved Keynes right. New Deal deficit spending was too small, too timid to restore the animal spirits of entrepreneurs battered by years of debt deflation. War is the least productive, most destructive of human activities with negative economic benefit, but the US government, by printing money and using it to hire workers knocked unemployment, which had been close to 20 percent in 1938 down to barely over 1 percent six years later.

It is important to understand that making bombs and blowing up cities is not what shrunk unemployment. It was the printing of money, the hiring of workers, the creation of demand by deficit spending. Had the US government spent as much as it had on fighting Hitler on promoting the arts, or building schools or even digging ditches and then filling them, it would have had just as beneficial an economic effect as did the war.”

I find it incredible that people can somehow believe that war is actually beneficial for the economy. But somehow, due to the Keynesian technique of aggregating everything, this can appear to be the case on a very superficial level.

Consider the claim above, where the unemployment rate dropped from 20% to just over 1% in a few years. This makes perfect sense when you consider that all men of military age were drafted – and thus became “employed” – during this time. But while the aggregate number shows “improvement”, it is all meaningless. Having millions of soldiers doesn’t create real wealth, so who cares? For more detailed analyses of why WW2 did not end the Great Depression, see this and this.

Even ignoring the draft, Mr. Streithorst claims that it is the printing of money and deficit spending which reduced unemployment. Like many of his claims, this one is true yet beside the point. He takes this reduction in unemployment and, for no reason at all, conflates this with having a beneficial effect on the economy.

But this is patently absurd, and in this passage, the intellectual bankruptcy of Keynesian economics is on display for all to see. According to Keynes (he actually wrote this in his General Theory) and Mr. Streithorst, employing workers to dig holes in order to fill them up is a good idea and helpful for the economy. It’s truly incredible that I even need to dignify such an assertion with a response, but alas, people simply don’t understand economics…or common sense.

Let’s say you and I were stuck on an island, when suddenly Mr. Streithorst washes ashore. He observes our prior economic arrangement, which involved spending a few hours a day catching fish and gathering coconuts, while we spend the rest of the day lounging around catching some sun. He tells us: “No, no, no! You’re doing it all wrong! Can’t you see that you are unemployed for half the day? Would it not be far better for your island economy to have you [points to me] dig some holes in the sand with your hands, and for you [points to you, dear reader] to fill them up as he goes? Your unemployment problem is solved!” Then he will pat himself on the back for having demonstrated the proper way to end our current “recession”.

Clearly, this ignores the fact that jobs are not what matters – production does. If we are employed doing something useless – such as digging holes and filling them up again – we are producing nothing. This is no better than leisure, but it is something that we’d prefer not to do. This makes us worse off, not better.

“But the economy soon [after the post-WW2 recession] recovered and for the next 25 years, the world experienced the greatest growth in its history. The fundamental source of Golden Age growth was rising incomes that brought millions out of poverty and into the middle class. Their demand for luxuries that were fast becoming necessities created a mass consumer market, and corporations grew rapidly by satisfying it.”

And why, Mr. Streithorst, did incomes rise? Do you think, perhaps, it could have something to do with increasing productivity of labor? Since that is the only way real wages can rise in aggregate, I sure do. But apparently, you do not:

“The rich grew richer during the Golden Age, but so did everyone else. Golden Age policies of progressive taxation, unionization, regulation are the opposite of what conservatives advocate today, but they were much more successful than the supply side policies that have dominated our more inequitable era. Inflation adjusted GDP growth was greater in the 1950s, 1960s, and even 1970s, than it ever has been since.”

I would love to hear an explanation of how progressive taxation, unionization, and regulation can increase the productivity of labor. Progressive taxation, and taxation in general, reduce investment, which reduces the accumulation of capital, which means that labor productivity will not grow as quickly as it otherwise would. Unions can get wages to increase for members of that particular union, but not across the board. In fact, if a business needs to hire workers at “union wages”, they will not be able to hire as many employees, and thus unemployment will increase. You could make an argument that safety regulations might increase worker productivity by preventing injuries…but then businesses would already have the incentive to regulate themselves in order to obtain higher profits. Regulations merely impose higher costs on businesses – a cost that is also paid for by reduced employment and reduced investment.

“In the 1970s, for a variety of reasons, corporate profitability went south. The positive feedback loop that raised the income of workers and businessmen alike fell apart. The Golden Age depended on capital and labor cooperating, and both profiting. In the 1970s, their social pact fell apart. The inflation of that era can be seen as capital and labor each trying to shift the cost of oil price hikes to the other. At first, organized labor won that battle and grabbed a larger share of the pie. Workers, especially organized workers did well in the 1970s. Wage growth, even taking inflation into account, was greater than it ever has been since.”

Or perhaps inflation was related to Nixon closing the gold window in 1971. Wouldn’t price increases be explained far better by the massive amount of money printing that took place at that time?

Mr. Streithorst then goes on to describe some changes that happened in the 80s to increase the power of corporations over unions and workers, and how that has led to falling wages and (oh no!) falling aggregate demand. The solution? Increase debt.

“For the past 30 years, we have solved the problem of creating demand in a world of stagnant wages by going ever deeper into debt. In 1965, private sector interest payments as a percentage of GDP were around 5 percent. At the top of the bubble, they were close to 25 percent.

Going into debt allowed families to keep consuming more even as their wages did not grow. This willingness to absorb higher levels of debt meant that lower wages did not mean lower demand. This required a profound change in attitudes toward borrowing. Golden Age workers, children of the Great Depression, had a horror towards spending more than they earned. They would rather do without than place themselves in a situation in which they might have difficulty repaying their debts. By the 1980s, this attitude evaporated. Saving became passé, having huge amounts of credit card debt nothing to be ashamed off. If the origin of capitalism, according to Max Weber, was in the willingness of Protestant entrepreneurs to forgo immediate gratification in order to save and invest in productivity enhancing machinery, today capitalism requires us to spend more than we make.”

Without a doubt, increased debt will lead to higher aggregate demand, at least temporarily. And to the Keynesian, this is all that matters. Sure, a worker may not be able to pay off their credit card bills, and may have to default or otherwise have their life ruined by profligate spending habits, but who cares, so long as they “stimulate the economy”?

“That today’s youngsters want to spend more than they earn is not that surprising. What does require an explanation is the reason banks were eager to lend. The answer, and the key to the growth paradigm of the period 1982-2007, is asset price inflation. Since 1971, when Richard Nixon severed the final link between money supply and gold, the quantity of money in the world has skyrocketed. According to the standard textbooks, this should have caused an explosion of inflation. It hasn’t because of globalization. Globalization is essentially a deflationary phenomenon. It destroys pricing power. Corporations can’t charge more for their goods because a factory in China can make it cheaper. Meanwhile increasing job insecurity means that workers cannot demand higher wages.”

Since 1971, the dollar has lost almost 83% of its purchasing power (see BLS inflation calculator). This using the CPI, which is a seriously flawed measurement that has undergone changes starting in the 1980s that artificially reduce the official inflation rate. In other words, the dollar has realistically lost somewhat more purchasing power than that. Does this sound deflationary?

On top of this, the potential increase in cost of living caused by the radical increase in the money supply has not been reached. Much of this extra money has gone into inflating asset prices (rather than consumer prices), causing the many bubbles we’ve seen in recent times. The money can also be “hoarded” as cash, rather than spent or invested, and thus will not increase prices. And as the world’s reserve currency, huge amounts of dollars are held abroad and aren’t spent on dollar-denominated goods in America. If and when those dollars return home – perhaps due to lack of confidence in the dollar or strategic moves by Russia and China – we will see a massive increase in consumer prices, and perhaps even hyperinflation.

But yes, the effects of globalization that were described in this quote are correct; there is indeed a tendency for it to lower prices. The division of labor can be extended even further, increasing efficiency. This is a good thing.

Mr. Streithorst then goes on to describe how, as I mentioned above, this increase in the money supply led to a massive asset price inflation – things like real estate and stocks began to have soaring valuations, which encourage further bank lending. His chain of reasoning, which I largely agree with, goes like this:

“So the chain of causality goes like this: globalization – low inflation – central banks set low interest rates – easy money – asset price inflation – strong collateral – more loans – easy money – asset price inflation. And it all adds up to debt-fuelled consumption.”

But here’s where he begins to go wrong again:

“From 1982 to 2007 when the last bubble finally popped, it was debt-fuelled consumption that allowed the global economy to grow. If an American did not max out his credit card, a factory in China closed. With wages stagnating, wage growth could not keep demand growing at the pace of supply.”

No, debt didn’t cause the economy to grow – at least not in a meaningful way. It certainly increased GDP, a flawed aggregate metric of total production. Yes, production increased during that time, but production of what? The increase in the money supply caused price distortions that alter the structure of production, such that investments that would not otherwise have been made (perhaps due to not having enough real resources to fund them) are embarked upon. And then yes, when the bubble bursts, these malinvestments must be liquidated. Close down all the vomit factories!

“One common, and naïve, notion blames Alan Greenspan for the financial crisis. This argument states that had he not cut interest rates in the wake of the dot-com bust, he wouldn’t have sparked the real estate bubble and so the subsequent bust could have been avoided. But had Greenspan kept rates high after 2000, then the Great Recession would have just occurred seven years earlier.”

It is without a doubt true that had Greenspan not lowered interest rates, we would have had a recession seven years earlier. But it would not have been anywhere near as severe, because there would have been seven fewer years of malinvestments and distortions to unwind.

Consider the economic depression that occurred in 1920-1921. Chances are, unless you are an economics nerd, you’ve never heard of this aspect of economic history; the Great Depression is far more historically significant in most peoples’ minds. The reason you’ve never heard of it is that, while there was an incredibly sharp depression in 1920 (unemployment shot up from 4% to 12% and GNP decreased by 17%), the government cut its budget in half and did not increase the money supply, and the whole thing was over by 1921 (see here and here for more info on this period). In other words, when the government gets out of the way, the economy recovers much more quickly and effectively.

Had the government learned the lessons of the forgotten depression of 1920, there would have been a swift recovery. Instead, the artificially low interest rates led to economic distortions that finally came home to roost in 2007 when the economy collapsed. And, of course, interest rates have been kept low since then, so any “recovery” that the economists and government keep telling us is happening is just another illusion, and will need to be unwound again in the future.

“When you are strapped for cash and owe more than you can afford, reducing your expenditures is a sensible response. Unfortunately, when everyone is cutting back, the economy slows. When consumers stop spending, firms have no reason to invest in increased capacity, no reason to hire more workers. And when workers fear for their jobs, they cut consumption even more. In 2007, the debt-based feedback loop that had kept the economy ticking went into reverse.”

Ahhh, the good ol’ “paradox” of thrift! Supposedly, while thrift may be beneficial to an individual, it is detrimental when everyone is being thrifty – when everyone stops spending money, aggregate demand collapses.

But this completely ignores what happens when people save. To the extent that an individual’s savings flow into investment, someone’s income (the recipient of the investment funds) is increasing due to the individual’s thriftiness. Switching from spending to saving merely changes the demand from consumption goods to investment goods. This isn’t any different than if I spent money on one gym membership and then switched to a different gym.

What about when people “hoard” money rather than saving/investing it? In this case, yes, aggregate demand will drop in nominal terms. Presumably, people are hoarding for a reason – they derive some value from having more cash on hand. Perhaps they appreciate the security that it gives them in times of financial uncertainty…an uncertainty that is often a consequence of loose monetary policy. In any case, hoarding money has no impact on the actual capital flows that are relevant when discussing something like the paradox of thrift. If I stuff a bunch of money under my mattress, this will merely increase the purchasing power of the rest of the money that is circulating. In other words, the nominal amount of investment will decrease if I hoard money, but the investment in terms of real capital need not.

For more on why the paradox of thrift is bogus, see here and here.

“The interaction between falling house prices, mortgage-backed securities, and third party repo agreements was the trigger of this disaster, but the larger lesson is that we are in this mess today because our post-scarcity world economy cannot produce sufficient effective demand required to keep everybody employed. From 1938 to 1945, war created that demand. From 1945 to 1973, prosperity, rising wages, and advertising created that demand. From 1982 to 2007, debt fuelled consumption financed by ever rising asset prices created that demand. In 2007, as fear roiled the markets, banks stopped lending, and when we could no longer spend beyond our means, the economy collapsed.”

If we truly lived in a “post-scarcity world”, then there would be no need for employment at all. Everyone could get whatever they want for free. But besides Mr. Streithorst’s misuse of the term, his assertion that we “cannot produce sufficient effective demand required to keep everybody employed” is completely off the mark. As I’ve explained before, aggregate demand isn’t the be all and end all; by ignoring the critically important structure of production, Keynesians have pulled a clever misdirection on us. We don’t want to keep everyone employed, but rather employed in a way that satisfies the wants of consumers.

“The most important thing to remember about the faux-prosperity of the last 30 years is that it was manufactured on the basis of paper profits. If my house was worth £3000 in 1973 and £1.5 million in 2012, it is still essentially the same house and gives me the same pleasure to live in. If we could manufacture demand by making bombs and if we could manufacture demand by making houses quadruple in price, then we can manufacture demand in other ways, perhaps more satisfying ways as well.”

How does Mr. Streithorst not see the obvious contradiction staring himself in the face in this passage? He is right that much of the “prosperity” of the past 30 years is fake, or just on paper. But then he turns around and says that making bombs or making houses increase in price are effective ways of stimulating aggregate demand (if not the most useful ways), and thus making us more prosperous. The “prosperity” that results from producing bombs isn’t real, just as the “prosperity” that results from massive vomit factories isn’t real.

Prosperity comes from satisfying consumer wants. This can only be done through a market-based price system, free from distortions.

 

How Do We “Fix” The Economy?

“In the short run, the first thing we should do to emerge from this debacle is to increase government deficits and focus this spending on infrastructure and education. These investments in our future create jobs today, and by putting money in workers wallets, give the private sector reason to hire and invest in increasing capacity.”

And why is this the case?

“The need for increased government spending is basic Economics 101. Gross national product equals consumption plus investment plus government spending. If households are consuming less and firms are investing less, government has to increase spending if the economy is not to shrink.”

If he means to say that a healthy economy is one that has as high of a GNP as possible, then his prescription is correct: government spending is certainly the way to go. Of course – and I suspect I may be beating a dead horse at this point – if the government spending is to create 10,000 new vomit factories, this increase in the GNP is meaningless in terms of making people better off. Perhaps the GNP itself is a flawed concept for measuring economic well-being…

Of course, Mr. Streithorst isn’t suggesting the government build vomit factories. He wants to invest in infrastructure and education, which I’m sure is a far better idea. But how do we know what is the proper proportion to be investing between them? Should the government finance a bridge in Washington State or New Jersey? Should the education funding go towards cultivating the most promising students or to helping the others catch up? Should it go to elementary education or higher education? In what proportions? And how much should be invested in these projects in aggregate?

It is the market – the system of free-floating prices between all kinds of goods – that determines the answers to these questions. When the government is allocating resources, it does so in a purely arbitrary manner, as opposed to market forces allocating them based on consumer preferences.

The fact is, the money used to finance these projects has to come from somewhere, even if it is debt. And that “somewhere” is always going to involve taking money out of the hands of those with the most knowledge of their own preferences and put it into the hands of bureaucrats with little incentive and no knowledge of how to spend it wisely and effectively.

“But in the longer run we need to figure out a better way to stimulate demand than either war or going into debt to buy more stuff. Personally, I favor government spending targeted on making the lives of citizens richer and more cultured. Some may say, this is elitist of me, to which I reply, what is wrong with elitism? Call me bourgeois, but Tolstoy is better than Adam Sandler and playing the piano more uplifting than playing Call of Duty 2. Consumer capitalism in its current form nurtures our basest urges, from unseemly spending to internet porn. From that commercial perspective, all spending is equal, all spending is good, and YouPorn is as valid as Shakespeare.”

Mr. Streithorst really gives himself away here. What is wrong with elitism? Really? Of course, if only Mr. Streithorst were the one in charge of allocating society’s resources, the world would be perfect!

It is not true that all spending is equal. Spending that satisfies consumer wants is preferable to spending which does not. YouPorn is more “valid” than Shakespeare if that is what the consumer wants. Ask any horny and illiterate man. Many people will prefer Shakespeare, and these people are welcome to attend the theater and spend their own money there. Similarly, many people like porn – what is wrong with these people spending their own money on it? Neither is culturally superior to the other, because culture is determined by the people who comprise it. It is not a decision to be made by government and passed down to the rest of society.

 

Conclusion

Keynesian economics is all smoke and mirrors. While on the surface, Keynesian explanations for economic phenomena can be convincing, this is because they depend on misdirection and trickery. A Keynesian policy may create a benefit in some specific area, and the Keynesian economist will draw your attention there. Meanwhile, you must pay no attention to the destruction these policies create in every other area of the economy.

One must, unfortunately, understand Keynesian economics in order to understand the way the world works; the most “important” people in society buy into the Keynesian worldview. Getting into their head is rather helpful, but dear lord is it also frustrating!

For those of you looking for the intellectual ammo to fully take down just about any Keynesian argument, look no further than Henry Hazlitt’s brilliant work, The Failure of the New Economics, where he decimates Keynes’s arguments line by line. It’s about as gratifying an experience as I can imagine.

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