Tag Archives: Freedom

charles-koch-wall-street-journal-2014-04-03

Cronyism is welfare for rich and powerful, writes Charles G. Koch

“The central belief and fatal conceit of the current administration is that you are incapable of running your own life, but those in power are capable of running it for you. This is the essence of big government and collectivism.”

That’s Charles G. Koch writing in the Wall Street Journal. The article is Charles Koch: I’m Fighting to Restore a Free Society, and is available to read without subscription or payment. In the article, Koch explains his involvement in public affairs:

Far from trying to rig the system, I have spent decades opposing cronyism and all political favors, including mandates, subsidies and protective tariffs — even when we benefit from them. I believe that cronyism is nothing more than welfare for the rich and powerful, and should be abolished.

Koch Industries was the only major producer in the ethanol industry to argue for the demise of the ethanol tax credit in 2011. That government handout (which cost taxpayers billions) needlessly drove up food and fuel prices as well as other costs for consumers — many of whom were poor or otherwise disadvantaged. Now the mandate needs to go, so that consumers and the marketplace are the ones who decide the future of ethanol.

There, Charles Koch explains a big problem with the insidious nature of government. Even those who are opposed to government interventions in markets find themselves forced to participate in government subsidy programs. When they do, they are often label as hypocrites for accepting benefits from the government programs they oppose. Koch Industries, as a manufacturer of gasoline, blends ethanol with the gasoline it produces. Federal law requires that. Even though Koch Industries opposed subsidies for ethanol, the company accepted the payments. A company newsletter explained: “Once a law is enacted, we are not going to place our company and our employees at a competitive disadvantage by not participating in programs that are available to our competitors.” (As Koch explains in the current article, the subsidy program for ethanol has ended, but there is still the mandate requiring its use in gasoline.)

Learn how economic freedom creates prosperity and improves lives throughout the world.

Learn how economic freedom creates prosperity and improves lives throughout the world.

Walter Williams, as he often does, explains the core of the problem using his characteristically blunt imagery: “Once legalized theft begins, it pays for everybody to participate.” Williams says not only does it pay to participate, the reality is that it is often necessary to participate in order to stay in business. This is part of the treacherous nature of government interventionism: A business can be humming along, earning a profit by meeting the needs of its customers, when government radically alters the landscape. Perhaps government backs a competitor, or forces changes to business methods that have been working satisfactorily and harming no one. What is the existing business to do in response? Consent to be driven out of business, just to prove a point?

Existing firms, then, are usually compelled to participate in the government program — accepting subsidies, conforming to mandates, letting government pull the strings. This creates an environment where government intervention spirals, growing by feeding on itself. It’s what we have today.

It happens not only at the federal level, but at state and local levels. Referring to a City of Wichita incentive program for commercial real estate, Wichita developer Steve Clark said: “Once you condition the market to accept these incentives, there’s nothing someone else can do to remain competitive but accept them yourself. Like the things we’re working on with the city, now we have to accept incentives or we’re out of business.”

In Kansas, there are state income tax credit programs that award credits (economically equivalent to cash payments) to companies that meet certain requirements that were established by the legislature and are administered by bureaucrats. These corporate welfare programs, which represent cronyism, are more valuable than lower tax rates, at least to influential Kansas businesses.

All this leads to a country whose government stifles the potential of its people — or even worse, as Koch explains — causes actual and severe harm:

Instead of fostering a system that enables people to help themselves, America is now saddled with a system that destroys value, raises costs, hinders innovation and relegates millions of citizens to a life of poverty, dependency and hopelessness. This is what happens when elected officials believe that people’s lives are better run by politicians and regulators than by the people themselves. Those in power fail to see that more government means less liberty, and liberty is the essence of what it means to be American. Love of liberty is the American ideal.

Charles Koch: I’m Fighting to Restore a Free Society

Instead of welcoming free debate, collectivists engage in character assassination.

By Charles G. Koch

I have devoted most of my life to understanding the principles that enable people to improve their lives. It is those principles — the principles of a free society — that have shaped my life, my family, our company and America itself.

Unfortunately, the fundamental concepts of dignity, respect, equality before the law and personal freedom are under attack by the nation’s own government. That’s why, if we want to restore a free society and create greater well-being and opportunity for all Americans, we have no choice but to fight for those principles. I have been doing so for more than 50 years, primarily through educational efforts. It was only in the past decade that I realized the need to also engage in the political process.

Continue reading at Wall Street Journal (subscription not required). More about Koch Industries, including an interview with Charles Koch that covers some of these topics, is available in a recent issue of Wichita Business Journal. Click here for free access.

Recommended reading: Foundations of a Free Society

institute-economic-affairs-logo

Described as “An introduction to the core principles that define a free society,” I highly recommend this short book. It’s written by Eamonn Butler and published by Institute of Economic Affairs, a British think tank whose mission is to “improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.” (Being written in British English, a few words are spelled wrongly now and then.)

The book may be purchased or downloaded at no charge at Foundations of a Free Society. Here is the summary of the book, as provided by the author:

  • Freedom creates prosperity. It unleashes human talent, invention and innovation, creating wealth where none existed before. Societies that have embraced freedom have made themselves rich. Those that have not have remained poor.
  • People in a free society do not become rich by exploiting others, as the elites of less-free countries do. They cannot become rich by making others poorer. They become rich only by providing others with what they want and making other people’s lives better.
  • The chief beneficiaries of the economic dynamism of free societies are the poor. Free societies are economically more equal than non-free societies. The poor in the most-free societies enjoy luxuries that were undreamed of just a few years ago, luxuries available only to the ruling elites of non- free countries.
  • International trade gives entrepreneurs new market opportunities and has helped lift more than a billion people out of abject poverty in the last twenty years. Freedom is truly one of the most benign and productive forces in human history.
  • Attempts by governments to equalise wealth or income are counter-productive. They destroy the incentives for hard work and enterprise and discourage people from building up the capital that boosts the productivity of the whole society.
  • A free society is a spontaneous society. It builds up from the actions of individuals, following the rules that promote peaceful cooperation. It is not imposed from above by political authorities.
  • Government has a very limited role in a free society. It exists to prevent harm being done to its citizens by maintaining and enforcing justice. It does not try to impose material equality and it does not prohibit activities just because some people consider them disagreeable or offensive. Leaders cannot plunder citizens for their own benefit, grant favours to their friends, or use their power against their enemies.
  • The government of a free society is constrained by the rule of law. Its laws apply to everyone equally. There must be?due process of law in all cases, with fair trials and no lengthy detention without trial. People accused of offences must be treated as innocent until proved guilty, and individuals must not be harassed by being prosecuted several times for the same offence.
  • Tolerating other people’s ideas and lifestyles benefits society. Truth is not always obvious; it emerges in the battle of ideas. We cannot trust censors to suppress only wrong ideas. They may mistakenly suppress ideas and ways of acting that would greatly benefit society in the future.
  • Communications technology is making it more difficult for authoritarian governments to hide their actions from the rest of the world. As a result, more and more countries are opening up to trade and tourism, and new ideas are spreading. More people see the benefits of economic and social freedom, and are demanding them.
Wichita/Sedgwick County Community Investment Plan logo.

Wichita planning documents hold sobering numbers

Wichita/Sedgwick County Community Investment Plan logo.

Wichita/Sedgwick County Community Investment Plan logo.

This week the City of Wichita held a workshop where the Community Investments Plan Steering Committee delivered a progress report to the city council. The documents hold information that ought to make Wichitans think, and think hard. The amounts of money involved are large, and portions represent deferred maintenance. That is, the city has not been taking care of the assets that taxpayers have paid for.

The time frame of this planning process is the period 2013 to 2035. Under the heading “Trends & Challenges” we find some troubling information. Wichita Mayor Carl Brewer hinted at the problem last year in his State of the City Address when he said the city would need to spend $2.1 billion over 30 years on maintenance and replacement of water and sewer systems. The city’s performance measure report also told us that our pavement condition index has been deteriorating, and is projected to continue to decline.

So if we’ve been paying attention, it should not have been a surprise to read this in the presentation: “Decades of under-investment in infrastructure maintenance … 38% of Wichita’s infrastructure is in ‘deficient/fair’ condition.”

The cost to remedy this lack of maintenance is substantial. The document says that on an annual basis, Wichita needs to spend $180 million on infrastructure depreciation/replacement costs. Currently the city spends $78 million on this, the presentation indicates.

The “cost to bring existing deficient infrastructure up to standards” is given as an additional $45 to $55 million per year.

This is a lot of money. To place these numbers in context, here are some figures that help illustrate Wichita city finances:

Property tax collected in 2013: $105 million
Budgeted 2014 expenditures for fire department: $44 million
Budgeted 2014 expenditures for police department: $79 million

It’s thought that an additional one cent per dollar city sales tax would generate around $80 million per year.

The amounts by which the city is deficient in maintaining its assets is staggering, compared to other expenses the city has. The size of the deficiency overwhelms possible sources of new revenue. A one cent per dollar increase in sales tax would not cover the deficiencies in maintaining our current assets. Then, remember the things Wichita wants to increase spending on — a new library, economic development, expanded public transit, new convention center, economic development, and perhaps other things.

The report lists three scenarios for future growth: Maintaining current trends, constrained suburban growth, and suburban and infill growth mix. Whenever we see words like “constrained” we need to be cautious. We need to be on guard. The Wichita Eagle reported this: “In the city’s recently completed series of 102 public meetings, citizens were clear, City Manager Robert Layton said: Redevelop the core. We’ve had enough suburban growth for awhile.”

It’s unclear how closely the findings from the public meetings reflects actual citizen preference. Cynics believe that these meetings are run in a way that produces a predetermined outcome aligned with what city officials want to hear. At any rate, when you ask people about their preferences, but there is no corresponding commitment to act on their proclaimed preferences, we have to wonder how genuine and reliable the results are.

There is a very reliable way to find out what people really want, however. Just let them do it. If people want to live downtown on in an inner city neighborhood, fine. If they want suburban-style living, that’s fine too. Well, it should be fine. But reading between the lines of city documents you get the impression that city planners don’t think people should live in suburban-style settings.

Sometimes we don’t have to read between the lines. Sometimes the attitude of planners is explicit. In 2010 the city — actually the Wichita Downtown Development Corporation — employed Goody Clancy, a Boston-based planning firm, to help plan the revitalization of downtown Wichita. In the article Goody Clancy market findings presented to Wichita audience I reported on some of what the planners said. For example, David Dixon, the Goody Clancy principal for this project, told how that in the future, Wichitans will be able to “enjoy the kind of social and cultural richness” that is found only at the core. “Have dinner someplace, pass a cool shop, go to a great national music act at the arena, and then go to a bar, and if we’re lucky, stumble home.”

This idea that only downtown people are socially and culturally rich is an elitist attitude that we ought to reject. By the way, when I presented to the Wichita City Council on this topic, I noted that no council members, except for possibly one, lived in neighborhoods that might be described as in “the core.”

Other speakers from Goody Clancy revealed a condescending attitude towards those who hold values different from this group of planners. One presenter said “Outside of Manhattan and Chicago, the traditional family household generally looks for a single family detached house with yard, where they think their kids might play, and they never do.”

This, again, is an elitist attitude. No, it’s worse than that. It’s condescending. It reveals that the professional planning class thinks that the ordinary people of Wichita can’t decide for themselves what they really want. Somehow, people are duped into buying homes that don’t really meet their needs, and they’re not smart enough to realize that. That is the attitude of the professional planning class. It’s an elitism that Wichitans ought to reject.

The planning process

The planners tells us that the process is based on data. “Data-driven” is a term they use. But when we look under the covers at the data, we realize that we need to be very skeptical of claims.

Returning to the Goody Clancy plan for downtown Wichita, the principal planner used Walk Score in a presentation delivered in Wichita. Walk Score is purported to represent a measure of walkability of a location in a city. Walkability is a key design element of the master plan Goody Clancy has developed for downtown Wichita.

Walk Score is not a project of Goody Clancy, as far as I know, and Dixon is not responsible for the accuracy or reliability of the Walk Score website. But he presented it and relied on it as an example of the data-driven approach that Goody Clancy takes.

Walk Score data for downtown Wichita, as presented by planning firm Goody Clancy. Click image for a larger version.

Walk Score data for downtown Wichita, as presented by planning firm Goody Clancy. Click image for a larger version.

The score for 525 E. Douglas, the block the Eaton Hotel and Wichita Downtown Development Corporation is located in and mentioned by Dixon as a walkable area, scored 91, which means it is a “walker’s paradise,” according to the Walk Score website.

But here’s where we can start to see just how bad the data used to develop these scores is. For a grocery store — an important component of walkability — the website indicates indicates a grocery store just 0.19 miles away. It’s “Pepsi Bottling Group,” located on Broadway between Douglas and First Streets. Those familiar with the area know there is no grocery store there, only office buildings. The claim of a grocery store here is false.

There were other claimed amenities where the data is just as bad. But the chairman of the Wichita Downtown Development Corporation at that time said that Walk Score has been updated. I should no longer be concerned with the credibility of this data, he told me through a comment left on my website.

He was correct in one regard: Walk Score had been updated. For the same location the walk score was revised to 85%, which is considered “very walkable.” The “grocery store” is no longer the Pepsi Bottling Group. It’s now “Market Place,” whose address is given as 155 N. Market St # 220.

Someone strolling by that location would notice that address, 155 N. Market number 220, is the management office for an office building whose name is Market Place.

Still no grocery store. Nothing even resembling a grocery store.

I looked this week at the Walk Score website. It’s been updated and redesigned. Now for the same block in the heart of downtown Wichita the walk score is 74, which is “very walkable,” according to the site. In a narrative explanation, the site says this: “The closest grocery stores are Ray Sales Co, Market Place and The Hot Spot Detox Shop.”

Ray Sales Co., in the shadow of Intrust Bank Arena.

Ray Sales Co., in the shadow of Intrust Bank Arena.

I don’t know if you’ve been to Ray Sales, but it’s a tiny store with a very limited product selection. It’s not the type of place that will attract people to downtown Wichita. We know that because officials say a grocery store is one of downtown’s most pressing needs, despite the existence of Ray Sales.

Market Place is listed again as evidence of a grocery store in downtown Wichita. Remember, Market Place is the name of an office building located on Market Street. It’s not a grocery store.

The third location listed as a grocery store is a shop that sells kits to help people pass drug tests. It’s nothing like a grocery store.

Again, David Dixon and Goody Clancy did not create the Walk Score data. But they presented it to Wichitans as an example of the data-driven, market-oriented approach to planning that they use. Dixon cited Walk Score data as the basis for higher real estate values based on the walkability of the area and its surrounding amenities. But anyone who relies on the evidence Dixon and Goody Clancy presented would surely get burnt unless they investigated the area on their own.

Keep in mind that the presentation of this Walk Score data was made after Goody Clancy staff had spent considerable time in Wichita. That someone there could not immediately recognize how utterly bogus the data is: That should give us cause for concern that the entire planning process is based on similarly shoddy data and analysis.

Constraining growth

Returning to the city’s presentation: How does the city “constrain” suburban growth? By taking away the freedom for people to live where they want. Why would the city want do that? City leaders say that suburban development is expensive. It’s not sustainable. Suburban living depends on the personal automobile. And remember the attitude of the professional planners Wichita Downtown Development Corporation hired: People can’t be trusted to know what they really want for themselves.

Special taxes paid on a residential home.

Special taxes paid on a residential home.

If it really is more expensive to develop new suburban areas, the city should simply charge what it costs. To some extent this already happens. Anyone who builds a new home in a new area will pay for the residential street and other infrastructure through special taxes. If the city feels it needs to charge for building arterial streets to serve new suburban areas, it should do so. But the city should realize that people spending their own money to buy or rent a residence — this is the best indication of their true preferences. What people say in focus groups or on paper survey forms is nowhere near as reliable.

Community input

The survey that Wichita used has its own problems. Here’s an example of a question respondents were asked to agree or disagree with: “Local government, the school district, community organizations and the business community should work together to create an investment climate that is attractive to business.”

The meaning of an attractive investment climate means different things to different people. Some people want an investment climate where property rights are respected, where government refrains from meddling in the economy and transferring one person’s property to another. An environment free from cronyism, in other words. But the Wichita way is, unfortunately, cronyism, where government takes an active role in managing economic development. We in Wichita never know when our local government will take from us to give to politically-favored cronies, or when city hall will set up and subsidize a competitor to your business.

Wichita flights compared to the nation.

Wichita flights compared to the nation.

Sometimes the questions are misleading. A question relating to the subsidy program at the Wichita airport read “I’m willing to pay increased taxes or fees to support investment … that uses public dollars to reduce the cost and increase the number of commercial flights at Mid-Continent Airport.”

This is an example of a question which has a false premise. Since the subsidy programs have been in place, the number of flights from the Wichita airport has declined, not increased as the question would lead readers to believe. See Wichita flight options decrease, despite subsidies and Wichita airfare subsidy: The negative effects.

Leadership of city fathers

On these and other issues, the Wichita Eagle quoted mayor Brewer: “We’ve put them off for too long. We didn’t want the challenges. We didn’t want the tax bills. But now, to maintain our quality of life, we’ve got to catch up.”

It’s almost as if the mayor is speaking as a bystander. But he’s been mayor for nearly seven years, and was on the city council before that time. During that time, he and other city leaders have boasted of not increasing property taxes. While the property tax rate has been stable, property tax revenue has increased due to development of new property and rising assessment values. In spite of this, the city has a huge backlog of deferred maintenance. The way to interpret this is that the city has really been engaging in deficit spending under Brewer’s leadership. We didn’t spend what was needed to maintain our assets, and now the mayor tells us we need to increase spending to make up for this.

The economist Milton Friedman told us that it’s more important to look at government spending rather than the level of taxation. That’s because spending must eventually be paid for, either through current taxes or future taxation. The federal government generate deficits and can pay for spending through creating inflation. Fortunately, cities and states can’t do that.

But, as we’ve seen, cities like Wichita can incur costs without paying for them. This is a form of deficit spending. By deferring maintenance of our infrastructure, the city has pushed spending to future years. The report released this week gives an idea of the magnitude of this deferred spending: It’s huge.

This form of deficit spending is “off the books” and doesn’t appear in city financial statements. But it’s real, as the mayor now admits. The threat to our freedom to live where we want is real, too. We must be watchful and diligent.

Zoltán Kész of Free Market Foundation of Hungary.

In Hungary, the rise of nationalism and racism

Zoltán Kész of Free Market Foundation of Hungary.

Zoltán Kész of Free Market Foundation of Hungary.

Zoltán Kész will speak at the Wichita Pachyderm Club on Friday February 21. The public is welcome to attend. For more information on this event, see Hungarian activist to address Pachyderms and guests.

In Hungary, nationalism and racism are rising problems. The Free Market Foundation of Hungary, co-founded by Zoltán Kész fights against these problems. Last November Kesz was in Wichita and I visited with him and a small group.

I asked about economic freedom in Hungary, noting that according to the economic freedom of the world report, Hungary was about in the middle of the European countries, although it is moving in the wrong direction. Kesz said that is right. Hungary had a very good economy in the 1990s, but in the past 13 or 14 years the country has been going in the wrong direction. The government in Hungary has a two-thirds majority he said, which means it can pass any law. The government passed a flat tax, but there are so many other taxes added on that he said it’s not really a flat tax. The flat, or value-added, tax is 27 percent.

Kesz said that while the government in Hungary says it is a conservative government, there have been recent developments that are contrary to free-market principles. For example, private pensions were nationalized in 2010. The government heavily regulates utility prices, and soon all utility companies will be nonprofit.

A serious and growing problem in Hungary is racism. In 2006, the Jobbik party, a group that is openly anti-Jew and anti-Roma (Gypsy) became popular. In 2010 it had 15 percent of the vote in the Hungarian parliament and is the third largest party. The country is very homogeneous, Kesz said, surrounded by Hungarians in other countries. An estimate is that about eight percent are Roma. There are about 100,000 Jews in Hungary, which has a total population of ten million.

The Jobbik party in Hungary — which Kesz described as far-right — is nationalistic and criticizes the loss of territory after World War I. It stirs up emotions for a larger Hungary and for getting the old empire back. Economically, Jobbik rejects globalism and foreign investment, and supports more government redistribution of income and wealth.

Very troubling is the radical, neo-Nazi aspect of Jobbik. The party blames Jews and Gypsies for the problems in Hungary. Kesz told of demands by one Jobbik member of parliament who demanded a list of Jews in the legislature. Leaders of Jobbik have said that Jews should be put in cattle wagons and shipped away to labor camps.

Recent surveys have reported that Jobbik attracts 33 percent of university students, and 52 percent of those say that in some cases they would prefer dictatorship rather than democracy.

It’s hard to overstate how serious is the problem of the rise of racism and nationalism in Hungary. In his recommendation of the free market foundation of Hungary, Tom G. Palmer said “The backsliding towards authoritarian statism and even primitive collectivism in the heart of Europe is extremely disturbing and so it is truly inspiring to see the work that the Free Market Foundation is doing. I was very active in the region as communism was crumbling and remember vividly the struggle of Hungarians to free themselves from the horrors of Communism.”

Last year Zoltan Kesz was named “Liberty Entrepreneur of the Year” by Atlas Economic Research Foundation. You can view his short speech nearby, or click here to view at YouTube.

Voice for Liberty Radio: David Boaz of Cato Institute

Voice for Liberty logo with microphone 150

In this episode of WichitaLiberty Radio: David Boaz spoke at the annual Kansas Policy Institute Dinner. David Boaz is the executive vice president of the Cato Institute and has played a key role in the development of the Cato Institute and the libertarian movement. He is a provocative commentator and a leading authority on domestic issues such as education choice, drug legalization, the growth of government, and the rise of libertarianism. Boaz is the former editor of New Guard magazine and was executive director of the Council for a Competitive Economy prior to joining Cato in 1981. He is the author of Libertarianism: A Primer, described by the Los Angeles Times as “a well-researched manifesto of libertarian ideas,” the editor of The Libertarian Reader, and coeditor of the Cato Handbook For Policymakers. His articles have been published in the Wall Street Journal, the New York Times, the Washington Post, the Los Angeles Times, National Review, and Slate. He is a frequent guest on national television and radio shows, and has appeared on ABC’s Politically Incorrect with Bill Maher, CNN’s Crossfire, NPR’s Talk of the Nation and All Things Considered, John McLaughlin’s One on One, Fox News Channel, BBC, Voice of America, Radio Free Europe, and other media. His latest book is The Politics of Freedom.

This is an excerpt of David Boaz speaking in Wichita, October 15, 2013.

Shownotes

Cato Institute
David Boaz at Cato Institute
David Boaz: Independent Thinking in a Red-Blue Town
Books by David Boaz
Kansas Policy Institute

Voice for Liberty Radio: Private enterprise and markets

Voice for Liberty logo with microphone 150

In this episode of WichitaLiberty Radio: Mary Beth Jarvis delivered the keynote address of the Kansas Republican Party Convention for 2014. She spoke on the topics of private enterprise and the profit and loss system.

Mary Beth Jarvis is Chief Executive Officer and President at Wichita Festivals. Prior to that, she worked in communications at Koch Industries, and before that in the United States Air Force.

In her speech, she said “Entrepreneurial capitalism — you know what that is — it’s not cronyism. It’s real courage, real risk, real passion, and real effort.”

Expanding on the importance of entrepreneurial capitalism, she told the audience:

“What else is necessary for that kind of entrepreneurial capitalism, that kind of engine for improvement, is that you always respect that what you need is a clear tie to market signals of what’s really adding value, what’s really making people’s lives better. That dedication to maintaining strong markets and to maintaining liberty is absolutely essential.

“It is also essential to find out quickly and clearly if this is the necessary message, that our efforts — however industrious — are not creating value. Because only then can you divert resources to that which will help us all. So the reward for successfully bringing value to someone ought to be clear, and the signal that you are not, ought to be clear, and the only way to do that is an absolute adherence to the principles of free markets and the improvement that they provide.”

In conclusion, she said: “In those public policy endeavors that you work so hard, and devote your energy and passion to, doing what’s right really means: Measuring ideas and actions by the yardstick of freedom and markets. The mantra that markets matter then becomes the platform for which the greatest progress and the greatest good in the improvement of our quality of life can happen.”

This was recorded on Friday January 24, 2014. This is a portion of her speech.

Shownotes

Wichita River Festival
Mary Beth Jarvis at LinkedIn

Economic freedom improves our lives

economic-chart-upwards-01Economic freedom, in countries where it is allowed to thrive, leads to better lives for people as measured in a variety of ways. This is true for everyone, especially for poor people.

This is the message presented in a short video based on the work of the Economic Freedom of the World report, which is a project of Canada’s Fraser Institute. Two years ago Robert Lawson, one of the authors of the Economic Freedom of the World report, lectured in Wichita on this topic. The current video is made possible by the Charles G. Koch Charitable Foundation.

One of the findings highlighted in the presentation is that while the average income in free countries is much higher than that in the least-free countries, the ratio is even higher for the poorest people in these countries. This is consistent with the findings that economic freedom is good for everyone, and even more so for those with low incomes.

Civil rights, a clean environment, long life expectancy, low levels of corruption, less infant mortality, less child labor, and lower unemployment are all associated with greater levels of economic freedom.

What are the components or properties of economic freedom? The presentation lists these:

  • Property rights are protected under an impartial rule of law.
  • People are free to trade with others, both within and outside the country.
  • There is a sound national currency, so that peoples’ money keeps its value.
  • Government stays small, relative to the size of the economy.

Over the last eleven years, the United States’ ranking has fallen relative to other countries, and the presentation says our position is expected to keep falling. The question is asked: “Will our quality of life fall with it?”

Economic freedom is not necessarily the platform of any single political party. It should be noted that for about eight of the past twelve years — a period in which our economic freedom has been falling — there was a Republican president, sometimes with a Republican Congress. The size of government rose. In 2005 the Cato Institute studied the numbers and found that “All presidents presided over net increases in spending overall, though some were bigger spenders than others. As it turns out, George W. Bush is one of the biggest spenders of them all. In fact, he is an even bigger spender than Lyndon B. Johnson in terms of discretionary spending.” This was before the spending on the prescription drug program had started.

Critics of economic freedom

The defining of what economic freedom means is important. Sometimes you’ll see people write things like “Bernie Madoff was only exercising his personal economic freedom while he ran his investment firm.” Madoff, we now know, was a thief. He stole his clients’ money. That’s contrary to property rights, and therefore contrary to economic freedom.

Or, you’ll see people say if you don’t like government, go to Somalia. That country, one of the poorest in the world — but not the poorest — is used as an example of how bad anarchy is as a form of government. The evidence is, however, that Somalia’s former government was so bad that things improved after the fall of that government. See Peter T. Leeson, Better Off Stateless: Somalia Before and After Government Collapse and History of Somalia (1991–2006).

You’ll also encounter people who argue that some countries are poor because they have no natural resources. But there are many countries with few natural resources that have economic freedom and a high standard of living. Most countries that are poor are that way because they are run by corrupt governments that have no respect for economic freedom, and follow policies that stifle it.

Some will argue that economic freedom means the freedom to pollute the environment. But it is in wealthy countries that the environment is respected. Poor countries, where people are struggling just to find food for each day, don’t have the time or wealth to be concerned about the environment.

Why Liberty

Cato Institute senior fellow Tom G. Palmer has released another new book in what seems to be an annual series aimed at young people. This year’s book is titled Why Liberty. The book’s webpage is at Why Liberty, and you can download your copy there.

Why Liberty is described as “a broad and multidisciplinary introduction to the ideas of liberty. It focuses not just on political theory but also on liberty through the lens of culture, entrepreneurship, health, art, technology, philosophy, and the transformative power of freedom. Edited by Dr. Tom G. Palmer, the book features articles from experts in the fields of policy, academia, business, media, and student organizing.”

In the opening chapter of this book, Palmer writes:

As you go through life, chances are almost 100 percent that you act like a libertarian. You might ask what it means to “act like a libertarian.” It’s not that complicated. You don’t hit other people when their behavior displeases you. You don’t take their stuff. You don’t lie to them to trick them into letting you take their stuff, or defraud them, or knowingly give them directions that cause them to drive off a bridge. You’re just not that kind of person.

You respect other people. You respect their rights. You might sometimes feel like smacking someone in the face for saying something really offensive, but your better judgment prevails and you walk away, or answer words with words.

You’re a civilized person. Congratulations. You’ve internalized the basic principles of libertarianism. You live your life and exercise your own freedom with respect for the freedom and rights of others. You behave as a libertarian.

A libertarian is someone who believes in the presumption of liberty. And with that simple presumption, when realized in practice, comes a world in which different people can realize their own forms of happiness in their own ways, in which people can trade freely to mutual advantage, and disagreements are resolved with words, and not with clubs. It would not be a perfect world, but it would be a world worth fighting for.

View an introductory video below, or click here to view in high definition at YouTube.

Classical liberalism means liberty, individualism, and civil society

Classical liberalism

In a short video, Nigel Ashford of Institute for Humane Studies explains the tenets of classical liberalism. Not to be confused with modern American liberalism or liberal Republicans, classical liberalism places highest value on liberty and the individual. Modern American liberals, or progressives as they often prefer to be called, may value some of these principles, but most, such as free markets and limited government — and I would add individualism and toleration — are held in disdain by them.

Here are the principles of classical liberalism that Ashford identifies:

Liberty is the primary political value. “When deciding what to do politically — what should the government do — classical liberals have one clear standard: Does this increase, or does it reduce the freedom of the individual?”

Individualism. “The individual is more important than the collective.”

Skepticism about power. “Government, for example, often claims ‘we’re forcing you to do X because it’s in your own interests to do so.’ Whereas very often, when people with power do that, it’s really because it’s good for themselves. Classical liberals believe that the individual is the best judge of their own interests.”

Rule of law.

Civil society. Classical liberals believe that problems can be dealt with best by voluntary associations and action.

Spontaneous order. “Many people seem to assume that order requires some institution, some body, to manipulate and organize things. Classical liberals don’t believe that. They believe that order can arise spontaneously. People through their voluntary interaction create the rules by which people can live by.”

Free markets. “Economic exchange should be left to voluntary activity between individuals. … We need private property to be able to do that. … History show us that leaving things to free markets rather than government planning or organization, increases prosperity, reduces poverty, increases jobs, and provides good that people want to buy.”

Toleration. “Toleration is the belief that one should not interfere with things on which one disapproves. … It’s a question of having certain moral principles (“I think this action is wrong”), but I will not try and force my opinions — for example through government — to stop the things I disapprove of.”

Peace. Through free movement of capital, labor, goods, services, and ideas, we can have a world based on peace rather than conflict and war.

Limited government. “There are very few things the government should do. The goal of government is simply to protect life, liberty, and property. Anything beyond that is not justifiable.”

This video is available on YouTube through LearnLiberty.org, a site which has many other informative videos. Besides this video, other resources on classical liberalism include What Is Classical Liberalism? by Ralph Raico, What Is Classical Liberalism? by John C. Goodman, Christianity, Classical Liberalism are Liberty’s Foundations by Leonard P. Liggio, What is Libertarian? at the Institute for Humane Studies, Why I, Too, Am Not a Conservative: The Normative Vision of Classical Liberalism (review of James M. Buchanan book by William A. Niskanen), Myths of Individualism by Tom G. Palmer, and Palmer’s book Realizing Freedom: Libertarian Theory, History, and Practice.

Laws that do harm

As we approach another birthday of Milton Friedman, here’s his column from Newsweek in 1982 that explains that despite good intentions, the result of government intervention often harms those it is intended to help.

There is a sure-fire way to predict the consequences of a government social program adopted to achieve worthy ends. Find out what the well-meaning, public-interested persons who advocated its adoption expected it to accomplish. Then reverse those expectations. You will have an accurate prediction of actual results.

To illustrate on the broadest level, idealists from Marx to Lenin and the subsequent fellow travelers claimed that communism would enhance both freedom and prosperity and lead to the “withering away of the state.” We all know the results in the Soviet Union and the People’s Republic of China: misery, slavery and a more powerful and all-encompassing government than the world had ever seen.

Idealists, from Harold Laski to Jawaharlal Nehru, promised the suffering Indian masses that “democratic economic planning” would abolish famines, bring material prosperity, resolve age-old conflicts between the castes and eliminate inequality. The result has been continued deprivation for the masses, continued violence between the castes and widened inequality.

To come down to less sweeping cases rent control has been promoted for millenniums as a way to hold down rents and ensure more housing for the disadvantaged. Wherever it has been adopted, the actual result has been precisely the opposite for all but a few favored tenants. Rent control has encouraged the wasteful use of housing space and has discouraged the building of more housing units. As a result, rents actually paid — whether legally or under the table — by all tenants except those who do not move have skyrocketed. And even the tenants who do not move complain about not being able to.

Over two years ago, when the San Francisco supervisors were contemplating a form of rent control, I republished in a local paper a NEWSWEEK column of mine on rent control, prefacing it with the comment that only a “fool or a knave” could support rent control after examining the massive evidence on its effects. Needless to say, that did not prevent the majority of a board of supervisors, consisting of neither fools nor knaves, from enacting the ordinance I objected to. And the lessons of experience have not prevented the adoption of rent control in other cities — or the repetition of that same experience.

Urban renewal programs were urged to cure “urban blight” and improve the housing available to the poor. The result was a “Federal Bulldozer,” as Martin Anderson titled his searching examination of urban renewal. More dwelling units were torn down than were constructed. The new units constructed were mostly for middle- and upper-income classes. Urban blight was simply shifted and made worse by the still higher density created elsewhere by removing the poor from the “renewed” area.

In education, professionalization, integration, bilingualism, massive doses of federal assistance — all have been promoted to improve the quality of schooling and reduce racial tension and discrimination. The result was predictable: a drastic lowering of educational performance and an increase in actual segregation of races, at least in the North.

President Nixon introduced price controls on Aug. 15, 1971, to eliminate inflation, which at the time was running at about 4 to 5 percent per year. When controls ended in 1974, inflation soared into double digits.

The Interstate Commerce Commission was promoted in the 1880s and 1890s by the Ralph Naders of the day to discipline monopolistic railroads and benefit their customers. One group in today’s Nader conglomerate has published a devastating study of the ICC demonstrating that it strengthened the monopoly power of the railroads, and later of trucking. The users of transportation have had the dubious privilege of paying higher prices for poorer service.

Need I go on? I challenge my readers to name a government social program that has achieved the results promised by its well-meaning and public-interested proponents. I keep repeating “well-meaning and public-interested proponents” because they have generally been the dupes of others who had very clear self-interested motives and often did achieve the results that they intended — the railroads in the 1890s for example.

The amazing thing to me is the continued gullibility of intellectuals and the public. I wish someone would explain that to me. Is it simply because no one has given this widely documented generalization a catchy name – like … (suggestions welcome)?

Friedman: The fallacy of the welfare state

As we approach another birthday of Milton Friedman, here’s an insightful passage from the book he wrote with his wife Rose: Free to Choose: A Personal Statement. It explains why government spending is wasteful, how it leads to corruption, how it often does not benefit the people it was intended, and how the pressure for more spending is always present.

A simple classification of spending shows why that process leads to undesirable results. When you spend, you may spend your own money or someone else’s; and you may spend for the benefit of yourself or someone else. Combining these two pairs of alternatives gives four possibilities summarized in the following simple table:

friedman-spending-categories-2013-07

Category I in the table refers to your spending your own money on yourself. You shop in a supermarket, for example. You clearly have a strong incentive both to economize and to get as much value as you can for each dollar you do spend.

Category II refers to your spending your own money on someone else. You shop for Christmas or birthday presents. You have the same incentive to economize as in Category I but not the same incentive to get full value for your money, at least as judged by the tastes of the recipient. You will, of course, want to get something the recipient will like — provided that it also makes the right impression and does not take too much time and effort. (If, indeed, your main objective were to enable the recipient to get as much value as possible per dollar, you would give him cash, converting your Category II spending to Category I spending by him.)

Category III refers to your spending someone else’s money on yourself — lunching on an expense account, for instance. You have no strong incentive to keep down the cost of the lunch, but you do have a strong incentive to get your money’s worth.

Category IV refers to your spending someone else’s money on still another person. You are paying for someone else’s lunch out of an expense account. You have little incentive either to economize or to try to get your guest the lunch that he will value most highly. However, if you are having lunch with him, so that the lunch is a mixture of Category III and Category IV, you do have a strong incentive to satisfy your own tastes at the sacrifice of his, if necessary.

All welfare programs fall into either Category III — for example, Social Security which involves cash payments that the recipient is free to spend as he may wish; or Category IV — for example, public housing; except that even Category IV programs share one feature of Category III, namely, that the bureaucrats administering the program partake of the lunch; and all Category III programs have bureaucrats among their recipients.

In our opinion these characteristics of welfare spending are the main source of their defects.

Legislators vote to spend someone else’s money. The voters who elect the legislators are in one sense voting to spend their own money on themselves, but not in the direct sense of Category I spending. The connection between the taxes any individual pays and the spending he votes for is exceedingly loose. In practice, voters, like legislators, are inclined to regard someone else as paying for the programs the legislator votes for directly and the voter votes for indirectly. Bureaucrats who administer the programs are also spending someone else’s money. Little wonder that the amount spent explodes.

The bureaucrats spend someone else’s money on someone else. Only human kindness, not the much stronger and more dependable spur of self-interest, assures that they will spend the money in the way most beneficial to the recipients. Hence the wastefulness and ineffectiveness of the spending.

But that is not all. The lure of getting someone else’s money is strong. Many, including the bureaucrats administering the programs, will try to get it for themselves rather than have it go to someone else. The temptation to engage in corruption, to cheat, is strong and will not always be resisted or frustrated. People who resist the temptation to cheat will use legitimate means to direct the money to themselves. They will lobby for legislation favorable to themselves, for rules from which they can benefit. The bureaucrats administering the programs will press for better pay and perquisites for themselves — an outcome that larger programs will facilitate.

The attempt by people to divert government expenditures to themselves has two consequences that may not be obvious. First, it explains why so many programs tend to benefit middle- and upper-income groups rather than the poor for whom they are supposedly intended. The poor tend to lack not only the skills valued in the market, but also the skills required to be successful in the political scramble for funds. Indeed, their disadvantage in the political market is likely to be greater than in the economic. Once well-meaning reformers who may have helped to get a welfare measure enacted have gone on to their next reform, the poor are left to fend for themselves and they will almost always he overpowered by the groups that have already demonstrated a greater capacity to take advantage of available opportunities.

The second consequence is that the net gain to the recipients of the transfer will be less than the total amount transferred. If $100 of somebody else’s money is up for grabs, it pays to spend up to $100 of your own money to get it. The costs incurred to lobby legislators and regulatory authorities, for contributions to political campaigns, and for myriad other items are a pure waste — harming the taxpayer who pays and benefiting no one. They must be subtracted from the gross transfer to get the net gain — and may, of course, at times exceed the gross transfer, leaving a net loss, not gain.

These consequences of subsidy seeking also help to explain the pressure for more and more spending, more and more programs. The initial measures fail to achieve the objectives of the well-meaning reformers who sponsored them. They conclude that not enough has been done and seek additional programs. They gain as allies both people who envision careers as bureaucrats administering the programs and people who believe that they can tap the money to be spent.

Category IV spending tends also to corrupt the people involved. All such programs put some people in a position to decide what is good for other people. The effect is to instill in the one group a feeling of almost God-like power; in the other, a feeling of childlike dependence. The capacity of the beneficiaries for independence, for making their own decisions, atrophies through disuse. In addition to the waste of money, in addition to the failure to achieve the intended objectives, the end result is to rot the moral fabric that holds a decent society together.

Another by-product of Category III or IV spending has the same effect. Voluntary gifts aside, you can spend someone else’s money only by taking it away as government does. The use of force is therefore at the very heart of the welfare state — a bad means that tends to corrupt the good ends. That is also the reason why the welfare state threatens our freedom so seriously.

Cronyism is harmful to our standard of living

“The effects on government are equally distorting — and corrupting. Instead of protecting our liberty and property, government officials are determining where to send resources based on the political influence of their cronies. In the process, government gains even more power and the ranks of bureaucrats continue to swell.”

An editorial in Wall Street Journal last year written by Charles G. Koch, chairman of the board and CEO of Wichita-based Koch Industries contains many powerful arguments against the rise of cronyism. The argument above is just one of many.

Did you know that the Washington metropolitan area is one of the most prosperous? Here’s why:

Trouble begins whenever businesses take their eyes off the needs and wants of consumers—and instead cast longing glances on government and the favors it can bestow. When currying favor with Washington is seen as a much easier way to make money, businesses inevitably begin to compete with rivals in securing government largess, rather than in winning customers. … There are now businesses and entire industries that exist solely as a result of federal patronage. Profiting from government instead of earning profits in the economy, such businesses can continue to succeed even if they are squandering resources and making products that people wouldn’t ordinarily buy.

In the article, Koch makes an important observation when he defines cronyism: “We have a term for this kind of collusion between business and government. It used to be known as rent-seeking. Now we call it cronyism. Rampant cronyism threatens the economic foundations that have made this the most prosperous country in the world.”

“Rent-seeking” was always a difficult term to use and understand. It had meaning mostly to economists. But “cronyism” — everyone knows what that means. It is a harsh word, offensive to many elected officials. But we need a harsh term to accurately describe the harm caused, as Koch writes: “This growing partnership between business and government is a destructive force, undermining not just our economy and our political system, but the very foundations of our culture.”

The entire article is available at the Wall Street Journal. Koch has also contributed other articles on this topic, see Charles G. Koch: Why Koch Industries is speaking out and Charles Koch: The importance of economic freedom.

Charles G. Koch: Corporate Cronyism Harms America

When businesses feed at the federal trough, they threaten public support for business and free markets.

By Charles G. Koch

“We didn’t build this business — somebody else did.”

So reads a sign outside a small roadside craft store in Utah. The message is clearly tongue-in-cheek. But if it hung next to the corporate offices of some of our nation’s big financial institutions or auto makers, there would be no irony in the message at all.

It shouldn’t surprise us that the role of American business is increasingly vilified or viewed with skepticism. In a Rasmussen poll conducted this year, 68% of voters said they “believe government and big business work together against the rest of us.”

Businesses have failed to make the case that government policy — not business greed — has caused many of our current problems. To understand the dreadful condition of our economy, look no further than mandates such as the Fannie Mae and Freddie Mac “affordable housing” quotas, directives such as the Community Reinvestment Act, and the Federal Reserve’s artificial, below-market interest-rate policy.

Far too many businesses have been all too eager to lobby for maintaining and increasing subsidies and mandates paid by taxpayers and consumers. This growing partnership between business and government is a destructive force, undermining not just our economy and our political system, but the very foundations of our culture.

With partisan rhetoric on the rise this election season, it’s important to remind ourselves of what the role of business in a free society really is — and even more important, what it is not.

The role of business is to provide products and services that make people’s lives better — while using fewer resources — and to act lawfully and with integrity. Businesses that do this through voluntary exchanges not only benefit through increased profits, they bring better and more competitively priced goods and services to market. This creates a win-win situation for customers and companies alike.

Only societies with a system of economic freedom create widespread prosperity. Studies show that the poorest people in the most-free societies are 10 times better off than the poorest in the least-free. Free societies also bring about greatly improved outcomes in life expectancy, literacy, health, the environment and other important dimensions.

Continue reading at The Wall Street Journal (subscription not required)

Internal Revenue Service IRS logo

An IRS political timeline

Internal Revenue Service IRS logo

In the summer of 2010 President Barack Obama and his allies warned of conservative groups with “harmless-sounding names like Americans for Prosperity.” At the time, supporters of AFP like myself were concerned, but AFP saw the president’s attacks as evidence of the group’s influence.

This week Kim Strassel of the Wall Street Journal looks back at the summer three years ago in light of what we’re just starting to learn about the Internal Revenue Service under the Obama Administration. Strassel writes: “We know that it was August 2010 when the IRS issued its first ‘Be On the Lookout’ list, flagging applications containing key conservative words and issues.”

Strassel presents a timeline of events from that time. Here’s an entry that should concern everyone:

Aug. 27: White House economist Austan Goolsbee, in a background briefing with reporters, accuses Koch industries of being a pass-through entity that does “not pay corporate income tax.” The Treasury inspector general investigates how it is that Mr. Goolsbee might have confidential tax information. The report has never been released.

This same week, the Democratic Party files a complaint with the IRS claiming the Americans for Prosperity Foundation is violating its tax-exempt status.

Somehow, I’m not surprised that the Obama-controlled Treasury Department is slow in investigating allegations of misdeeds by an Obama economic adviser, even though Goolsbee hasn’t worked for Obama for some time.

In conclusion, Strassel ties it all together and links the current IRS scandal to Washington:

These were not off-the-cuff remarks. They were repeated by the White House and echoed by its allies in campaign events, emails, social media and TV ads. The president of the United States spent months warning the country that “shadowy,” conservative “front” groups — “posing” as tax-exempt entities and illegally controlled by “foreign” players — were engaged in “unsupervised” spending that posed a “threat” to democracy. Yet we are to believe that a few rogue IRS employees just happened during that time to begin systematically targeting conservative groups? A mere coincidence that among the things the IRS demanded of these groups were “copies of any contracts with and training materials provided by Americans for Prosperity”?

This newspaper reported Thursday that Cincinnati IRS employees are now telling investigators that they took their orders from Washington. For anyone with a memory of 2010 politics, that was obvious from the start.

It’s evident that we’re just starting to uncover what’s been happening to freedom and liberty under the Obama Administration (and past presidents, too). We don’t know where this will lead, but we need to be thankful for organizations like Americans for Prosperity and others that haven’t backed down.

An IRS Political Timeline

President Obama spent months in 2010 warning Americans about the ‘threat’ to democracy posed by conservative groups, right at the time the IRS began targeting these groups.

By Kimberly A. Strassel

Perhaps the only useful part of the inspector general’s audit of the IRS was its timeline. We know that it was August 2010 when the IRS issued its first “Be On the Lookout” list, flagging applications containing key conservative words and issues. The criteria would expand in the months to come.

What else was happening in the summer and fall of 2010? The Obama administration and its allies continue to suggest the IRS was working in some political vacuum. What they’d rather everyone forget is that the IRS’s first BOLO list coincided with their own attack against “shadowy” or “front” conservative groups that they claimed were rigging the electoral system.

Below is a more relevant timeline, a political one, which seeks to remind readers of the context in which the IRS targeting happened.

Continue reading at the Wall Street Journal (subscription not required).

Governing by extortion destroys freedom

By Dave Trabert, Kansas Policy Institute.

Government takes and gives

Merriam-Webster defines extortion as the “… exaction of money or property through intimidation or undue exercise of authority.” It’s illegal for individuals or corporations to engage in extortion, but some governments are increasingly using forms of extortion to exact higher taxes, make citizens more dependent upon government and ultimately, strip away economic and political freedom.

Government intimidation may not come with Soprano-like threats of violence. Some government officials may not even realize they are extorting the populous — the practice of presenting the government solution as the only option has become that commonplace. But no matter how politely or subtly phrased, the message is “give us what we want or else …” The “or else” comes in many forms.

The federal government punishes citizens with flight delays and service cuts to senior citizens while continuing to lavish taxpayer money on favored political friends and countless other examples of waste and duplication. The federal government will either get to borrow and spend as much as it wants or innocent citizens will pay the price.

Some state officials in Kansas want to extend a temporary sales tax and/or take away deductions for home mortgage interest and property taxes. They say it’s necessary to avoid massive budget deficits that would de-fund schools and services. The message is that higher taxes are the only alternative, when in fact they could choose to bring down the cost of government services and stop giving out corporate welfare in the name of economic development.

University officials in Kansas say they will raise tuition, eliminate professors, and restrict student admissions if state aid is even slightly reduced. They say nothing of reducing administrative costs that rose three times faster than inflation or using large cash reserves that accumulated from a 137 percent increase in tuition and fees over the last ten years. Give them what they want or students, parents, and staff will suffer.

Local governments routinely tell citizens that taxes must be increased to avoid police and fire layoffs, pool closings and other direct service reductions. Why not consolidate overlapping government programs and bureaucracy instead of raising taxes? Or maybe stop giving taxpayer money away to friendly developers who support the growth of government and help underwrite campaigns for public office?

Our state and nation were founded on the principles of freedom and limited government. Yet those who stand in defense of freedom are often met with ridicule. Carl Brewer, the Mayor of Wichita, recently issued a thinly veiled threat to sue a woman for asking him to recuse himself from a vote to give a $700,000 sales tax exemption to a campaign contributor (and fishing buddy). A columnist for the Hutchinson News falsely blamed those who want less government intrusion in our lives for poverty, high property taxes and other woes as opposed to following his prescription for progressive, big government solutions.

Thomas Jefferson said, “Government exists for the interests of the governed, not for the governors.” Some in our state seems to have forgotten that and are working to prove another of his maxims, “The natural progress of things is for liberty to yield and government to gain ground.”

Citizens must be persistent and vocal in reminding elected officials of the former or we shall continue to suffer the loss of liberty.

Is money speech?

“Americans have the right to free speech, but what does that include? Is money a form of speech? Prof. Bradley Smith illustrates some ways money is used in practice to ensure people have free speech. For example, money used to build a place of worship or to run a newspaper or radio station could be considered a form of speech. The same can be said for money used to purchase a megaphone so a speaker can be heard over a crowd. If these uses of money are protected as a form of speech, does that mean money used on a political campaign is also a form of speech?”

A video from LearnLiberty.org, a project of Institute for Humane Studies, explains that spending money is a form of speech.

Milton Friedman was well aware of the connection between economic freedom — of which spending money is a component — and political freedom. Here’s what he had to say in the opening chapter of his monumental work Capitalism and Freedom:

The Relation between Economic Freedom and Political Freedom

It is widely believed that politics and economics are separate and largely unconnected; that individual freedom is a political problem and material welfare an economic problem; and that any kind of political arrangements can be combined with any kind of economic arrangements. The chief contemporary manifestation of this idea is the advocacy of “democratic socialism” by many who condemn out of hand the restrictions on individual freedom imposed by “totalitarian socialism” in Russia, and who are persuaded that it is possible for a country to adopt the essential features of Russian economic arrangements and yet to ensure individual freedom through political arrangements. The thesis of this chapter is that such a view is a delusion, that there is an intimate connection between economics and politics, that only certain arrangements are possible and that, in particular, a society which is socialist cannot also be democratic, in the sense of guaranteeing individual freedom.

Economic arrangements play a dual role in the promotion of a free society. On the one hand, freedom in economic arrangements is itself a component of freedom broadly understood, so economic freedom is an end in itself. In the second place, economic freedom is also an indispensable means toward the achievement of political freedom.

Surveillance state arrives in Wichita

In an effort to control crime in Old Town, Wichita is importing the police surveillance state. Right now the targeted area is a small part of the city during certain periods of time. But once camera use has started, it is likely to spread across town, especially given the enthusiasm of police and elected officials like Wichita city council member Lavonta Williams (district 1, northeast Wichita), according to Wichita Eagle reporting.

Many people may not be aware of the gross invasion of privacy that government cameras represent. Have you used the facial recognition technology in Google’s Picasa software? It’s uncanny how accurate it is. In the hands of government, it’s a concern.

Some surveillance cameras can read car license plates two blocks away. With facial recognition technology and optical character recognition, police don’t have to actually watch the live or recorded video to learn who has been in a location. Computers can create databases, updated in real time with who is where at what time. Alerts can be programmed, so that if a person or car is seen, police can be notified.

Then, we have to wonder whether the cameras work as advertised. The website You Are Being Watched, a project of the American Civil Liberties Union, comes to this conclusion: “An increasing number of American cities and towns are investing millions of taxpayer dollars in surveillance camera systems. But few are closely examining the costs and benefits of those investments, or creating mechanisms for measuring those costs and benefits over time. There is extensive academic literature on the subject — studies carried out over many years — and that research demonstrates that video surveillance has no statistically significant effect on crime rates. Several studies on video surveillance have been conducted in the UK, where surveillance cameras are pervasive. The two main meta-analyses conducted for the British Home Office (equivalent to the US departments of Justice and Homeland Security) show that video surveillance has no impact on crime whatsoever. If it did, then there would be little crime in London, a city estimated to have about 500,000 cameras.”

An irony is that law enforcement likes recording citizens, but not the other way around. As John Stossel has noted, police don’t like to be recorded. In some states its a crime to tape a police officer making an arrest. A video excerpt from Stossel’s television shows the attitudes of police towards being recorded. At Reason Radley Balko details the problem, writing “As citizens increase their scrutiny of law enforcement officials through technologies such as cell phones, miniature cameras, and devices that wirelessly connect to video-sharing sites such as YouTube and LiveLeak, the cops are increasingly fighting back with force and even jail time—and not just in Illinois. Police across the country are using decades-old wiretapping statutes that did not anticipate iPhones or Droids, combined with broadly written laws against obstructing or interfering with law enforcement, to arrest people who point microphones or video cameras at them. Even in the wake of gross injustices, state legislatures have largely neglected the issue.”

Further irony is found in the parties promoting the cameras. Council member Williams was instrumental in crafting Wichita’s smoking ban. So too was Charlie Claycomb, president of the Old Town Association. One of their arguments was that everyone should have the right to enter any business and not be subjected to secondhand smoke. It was an argument based on civil liberties.

I’d like to be able to enjoy a cocktail in Old Town without my presence monitored and noted by the police. Is that a civil liberty worth preserving?

Wichita should reconsider this decision. It seems like an easy solution to a problem. But it’s another journey down the road of the ever-growing regulatory regime in Wichita.

Free will and government charity

Those who call on government intervention to take care of the less fortunate and who rely on Christian teachings to support such government action, often conveniently forget that government is based on coercion, not the free will that God created us with. As P.J. O’Rourke wrote: “There is no virtue in compulsory government charity, and there is no virtue in advocating it. A politician who portrays himself as ‘caring’ and ‘sensitive’ because he wants to expand the government’s charitable programs is merely saying that he’s willing to try to do good with other people’s money. Well, who isn’t? And a voter who takes pride in supporting such programs is telling us that he’ll do good with his own money — if a gun is held to his head.” Below, Jason Karber elaborates.

Jesus did encourage people to help the less fortunate. What I don’t recall from Sunday school is any instance where Jesus implored the government to use force to transfer resources from one group to another.

Indeed the Christian belief system is not exclusive of free-market capitalism. Free-will in Christianity, and free markets in economies appear complimentary to me. While the citizens of government planned economies starve, the poor in the United States are threatened more by obesity than starvation. Many people who are on record as staunch free-market capitalists are generous donors of time and money on their own accord. Freedom provides better lives for everyone, and less freedom via a bigger government will ultimately reduce the quality of life for all.

While I understand that not everyone within a political group think alike, I do chuckle a bit when the policies embraced by liberals include removing any religious ideology and prayer from public schools, while calling our leaders hypocritical for not mandating Biblical principals
using public policy.

Jason Karber

Republicans recognize overcriminalization

A section of the platform agreed to at the Republican National Convention expresses concern over the rise of overcriminalization:

“The resources of the federal government’s law enforcement and judicial systems have been strained by two unfortunate expansions: the over-criminalization of behavior and the over-federalization of offenses. The number of criminal offenses in the U.S. Code increased from 3,000 in the early 1980s to over 4,450 by 2008. Federal criminal law should focus on acts by federal employees or acts committed on federal property — and leave the rest to the States. Then Congress should withdraw from federal departments and agencies the power to criminalize behavior, a practice which, according to the Congressional Research Service, has created ‘tens of thousands’ of criminal offenses. No one other than an elected representative should have the authority to define a criminal act and set criminal penalties. In the same way, Congress should reconsider the extent to which it has federalized offenses traditionally handled on the State or local level.”

Overcriminalization has risen to become a serious threat to the freedom and liberty of citizens, placing increasing and arbitrary power in the hands of federal officials. According to The Heritage Foundation, overcriminalization is characterized by these factors:

  1. The use of strict liability crimes (i.e., offenses that dispense with the requirement that a person act with a “guilty mind,” however defined) to outlaw conduct, particularly in commercial and regulatory fields;
  2. The passage of several laws applicable to the same conduct, which enables prosecutors to multiply charges and thereby threaten a person with a severe term of imprisonment if he does not accept a plea bargain;
  3. The delegation to administrative agencies of the responsibility for filling in the details of a substantive criminal law, which thereby vests in the agency responsible for enforcing the law the power also to define its terms; and
  4. Enforcing through the criminal law conduct that, if it is to be enforced by the government at all, should be enforced through administrative or civil mechanisms.

The first item should be particularly troubling to citizens, as it removes one of the elements necessary to convict someone of a crime — that the person intended to commit a crime. The Heritage Foundation paper Without Intent: How Congress Is Eroding the Criminal Intent Requirement in Federal Law explains:

“A core principle of the American system of justice is that individuals should not be subjected to criminal prosecution and conviction unless they intentionally engage in inherently wrongful conduct or conduct that they know to be unlawful. Only in such circumstances is a person truly blameworthy and thus deserving of criminal punishment. This is not just a legal concept; it is the fundamental anchor of the criminal justice system.”

After noting the 4,450 federal laws and estimating that tens of thousands more are located in federal regulations, the authors explain the problem regarding intent:

“But something fundamental is often lacking from this tidal wave of penal provisions: meaningful mens rea requirements. Mens rea is a Latin term describing a culpable mental state, without which there can be no crime. Lamentably, Congress has enacted scores of laws with weak or no mens rea requirements, the result of a legislative process that is haphazard at best and arbitrary at worst. In doing so, it has eroded the principle of fair notice beyond recognition and dangerously impaired the justification for criminal punishment that has for centuries been based on an individual’s intent to commit a wrongful act.”

While overcriminalization is often seen as a federal problem, it infects states and cities, too. Recently the Wichita City Council passed a sign ordinance that has the characteristics of overcriminalization. A key provision is this: “The existence of a temporary sign in the right of way or on public property directing attention to a person is prima facie evidence that such person has caused the placement of such sign in the right of way or on public property.”

This means that the mere existence of a sign promoting a candidate being in the wrong place is evidence that the candidate is guilty of a crime. No matter how well a candidate trains staff and volunteers on proper sign placement, if a sign is in the wrong place, the candidate is presumed guilty. It’s difficult to defend against this presumption.

The National Association of Criminal Defense Lawyers has created a series of short videos that explain more about overcriminalization. The first, titled “Overcriminalization: Criminalizing the Everyday” is presented below, and additional titles may be viewed here.

SWATing a threat to political speech

Conservative bloggers are being targeted with an illegal and dangerous tactic with the aim of silencing or moderating their voices. The tactic is SWATing (from the police special forces often named Special Weapons and Tactics). The perpetrator makes a telephone call to police falsely reporting that a crime — usually a violent crime — has been committed or is in progress at a blogger’s home.

Erick Erickson of the prominent conservative blog RedState relates the story of his SWATing: “Sunday night as my family and sister’s family were around the dinner table and playing outside, sheriff’s deputies pulled into my driveway responding to an accidental shooting at my home. One deputy was in the driveway. Another blocked the end of the driveway with his car. A neighbor tells me another was up the hill from the house. There was no shooting at my home. Someone called 911, claimed to be at my home, and claimed to witness a shooting at my home.”

Besides the illegality of making a false police report, the tactic is dangerous to both police officers and people at or nearby the targeted address.

U.S. Senator Saxby Chambliss of Georgia has written to Attorney General Eric Holder expressing his concern regarding the SWATing attacks. In his letter he wrote “Any potentially criminal action that incites fear, seeks to silence a dissenting opinion, and collaterally wastes the resources of law enforcement should be given close scrutiny at all levels.”

Later he added “The perpetrators appear to be targeting individuals who are vigorously exercising their First Amendment rights to political speech. As you know, these reported efforts to intimidate those who choose to enter the political forum and express their opinions are in conflict with the founding principles of our nation. Regardless of any potential political differences that may exist, threats and intimidation have no place in our national political discourse. Those who choose to enter into that political discourse should not have to worry about potential threats to their or their family’s safety.”

The purpose of SWATing is to, as Chambliss explained, silence conservative bloggers, or make them less likely to write posts and articles. Besides the attempt to tamp down civil debate and discourse, the SWATing technique is illegal and potentially deadly. It goes beyond bullying. Those who use it are domestic terrorists.

The use of SWATing against conservatives stands in contrast to a recent New York Times column by Charles M. Blow. In the column, Blow uses the bullying of an elderly bus monitor to draw a larger conclusion: Republicans are bullies. “… bullying has become boilerplate. Hiss and taunt. Tease and intimidate. Target your enemies and torture them mercilessly. Maintain primacy through predation.”

Later Blow wrote “But bullying is always about power — projecting more than you have in order to accrue more than your share.” That describes SWATing: Illegally summoning police power to target and intimidate your enemies.

Myth: Markets can solve all problems without government at all

When thinking about the difference between government action and action taken by free people trading voluntarily in markets, we find that many myths abound. Tom G. Palmer, who is Vice President for International Programs at the Atlas Economic Research Foundation, General Director of the Atlas Global Initiative for Free Trade, Peace, and Prosperity, a Senior Fellow at the Cato Institute, and Director of Cato University, has written an important paper that confronts these myths about markets. The twentieth myth — Markets Can Solve All Problems without Government at All — and Palmer’s refutation is below. The complete series of myths and responses is at Twenty Myths about Markets.

Palmer is editor of the recent book The Morality of Capitalism. He will be in Overland Park and Wichita in May speaking on the moral case for capitalism. For more information and to register for these events see The Morality of Capitalism. An eleven minute podcast of Palmer speaking on this topic is at The Morality of Capitalism.

Myth: Markets Can Solve All Problems without Government at All

Myth: Government is so incompetent that it can’t do anything right. The main lesson of the market is that we should always weaken government, because government is simply the opposite of the market. The less government you have, the more market you have.

Tom G. Palmer: Those who recognize the benefits of markets should recognize that in much of the world, perhaps all of it, the basic problem is not only that governments do too much, but also that they do too little. The former category — things that governments should not do, includes A) activities that should not be done by anyone at all, such as “ethnic cleansing,” theft of land, and creating special legal privileges for elites, and B) things that could and should be done through the voluntary interaction of firms and entrepreneurs in markets, such as manufacturing automobiles, publishing newspapers, and running restaurants. Governments should stop doing all of those things. But as they cease doing what they ought not to do, governments should start doing some of the things that would in fact increase justice and create the foundation for voluntary interaction to solve problems. In fact, there is a relation between the two: governments that spend their resources running car factories or publishing newspapers, or worse — confiscating property and creating legal privileges for the few — both undercut and diminish their abilities to provide truly valuable services that governments are able to provide. For example, governments in poorer nations rarely do a good job of providing clear legal title, not to mention securing property from takings. Legal systems are frequently inefficient, cumbersome, and lack the independence and impartiality that are necessary to facilitate voluntary transactions.

For markets to be able to provide the framework for social coordination, property and contract must be well established in law. Governments that fail to provide those public benefits keep markets from emerging. Government can serve the public interest by exercising authority to create law and justice, not by being weak, but by being legally authoritative and at the same time limited in its powers. A weak government is not the same as a limited government. Weak unlimited governments can be tremendously dangerous because they do things that ought not to be done but do not have the authority to enforce the rules of just conduct and provide the security of life, liberty, and estate that are necessary for freedom and free market exchanges. Free markets are not the same as the sheer absence of government. Not all anarchies are attractive, after all. Free markets are made possible by efficiently administered limited governments that clearly define and impartially enforce rules of just conduct.

It is also important to remember that there are plenty of problems that have to be solved through conscious action; it’s not enough to insist that impersonal market processes will solve all problems. In fact, as Nobel Prize winning economist Ronald Coase explained in his important work on the market and the firm, firms typically rely on conscious planning and coordination to achieve common aims, rather than on constant recourse to market exchanges, because going to the market is costly. Each contract arranged is costly to negotiate, for example, so long-term contracts are used instead to reduce contracting costs. In firms, long-term contracts substitute for spot-exchanges and include labor relations involving teamwork and conscious direction, rather than constant bidding for particular services. Firms — little islands of teamwork and planning — are able to succeed because they navigate within a wider ocean of spontaneous order through market exchanges. (The great error of the socialists was to try to manage the entire economy like one great firm; it would be a similar error not to recognize the limited role of conscious direction and teamwork within the wider spontaneous order of the market.) To the extent that markets can provide the framework of creation and enforcement of rules of just conduct, advocates of free markets should promote just that. Private security firms are often better than state police (and less violent, if for no other reason than that the cost of violence are not easily shifted to third parties, except by the state); voluntary arbitration often works far better than state courts. But recognizing that entails recognizing the central role of rules in creating markets and, thus, favoring efficient and just rules, whether provided by government or by the market, rather than merely being “anti-government.”

Finally, it should be remembered that property and market exchange may not, by themselves, solve all problems. For example, if global warming is in fact a threat to the entire planet’s ability to sustain life, or if the ozone layer is being degraded in ways that will be harmful to life, coordinated government solutions may be the best, or perhaps the only, way to avoid disaster. Naturally, that does not mean that markets would play no role at all; markets for rights to carbon dioxide emissions might, for example, help to smooth adjustments, but those markets would first have to be established by coordination among governments. What is important to remember, however, is that deciding that a tool is not adequate and appropriate for all conceivable problems does not entail that it is not adequate and appropriate for any problems. The tool many work very well for some or even most problems. Property and markets solve many problems and should be relied on to do so; if they do not solve all, that is no reason to reject them for problems for which they do offer efficient and just solutions.

Free markets may not solve every conceivable problem humanity might face, but they can and do produce freedom and prosperity, and there is something to be said for that.

Myth: All relations among humans can be reduced to market relations

When thinking about the difference between government action and action taken by free people trading voluntarily in markets, we find that many myths abound. Tom G. Palmer, who is Vice President for International Programs at the Atlas Economic Research Foundation, General Director of the Atlas Global Initiative for Free Trade, Peace, and Prosperity, a Senior Fellow at the Cato Institute, and Director of Cato University, has written an important paper that confronts these myths about markets. The nineteenth myth — All Relations Among Humans Can Be Reduced to Market Relations — and Palmer’s refutation is below. The complete series of myths and responses is at Twenty Myths about Markets.

Palmer is editor of the recent book The Morality of Capitalism. He will be in Overland Park and Wichita in May speaking on the moral case for capitalism. For more information and to register for these events see The Morality of Capitalism. An eleven minute podcast of Palmer speaking on this topic is at The Morality of Capitalism.

Myth: All Relations Among Humans Can Be Reduced to Market Relations

Myth: All actions are taken because the actors are maximizing their own utility. Even helping other people is getting a benefit for yourself, or you wouldn’t do it. Friendship and love represent exchanges of services for mutual benefit, no less than exchanges involving sacks of potatoes. Moreover, all forms of human interaction can be understood in terms of markets, including politics, in which votes are exchanged for promises of benefits, and even crime, in which criminals and victims exchange, in the well known example, “your money or your life.”

Tom G. Palmer: Attempting to reduce all actions to a single motivation falsifies human experience. Parents don’t think about the benefits to themselves when they sacrifice for their children or rush to their rescue when they’re in danger. When people pray for salvation or spiritual enlightenment, their motivations are not quite the same as when they are shopping for clothes. What they do have in common is that their actions are purposeful, that they are undertaken to achieve their purposes. But it does not follow logically from that that the purposes they are striving to achieve are all reducible to commensurable units of the same substance. Our purposes and motivations may be varied; when we go to the market to buy a hammer, when we enter an art museum, and when we cradle a newborn baby, we are realizing very different purposes, not all of which are well expressed in terms of buying and selling in markets.

It is true that intellectual constructs and tools can be used to understand and illuminate a variety of different kinds of interaction. The concepts of economics, for example, which are used to understand exchanges on markets, can also be used to understand political science and even religion. Political choices may have calculable costs and benefits, just like business choices; political parties or mafia cartels may be compared to firms in the market. But it does not follow from such applications of concepts that the two choice situations are morally or legally equivalent. A criminal who offers you a choice between keeping your money and keeping your life is not relevantly like an entrepreneur who offers you a choice between keeping your money and using it to buy a commodity, for the simple reason that the criminal forces you to choose between two things to both of which you have a moral and legal entitlement, whereas the entrepreneur offers you a choice between two things, to one of which he has an entitlement and to one of which you have an entitlement. In both cases you make a choice and act purposively, but in the former case the criminal has forced you to choose, whereas in the latter case the entrepreneur has offered you a choice; the former lessens your entitlements and the latter offers to increase them, by offering you something you don’t have but may value more for something you do have but may value less. Not all human relationships are reducible to the same terms as markets; at the very least, those that involve involuntary “exchanges” are radically different, because they represent losses of opportunity and value, rather than opportunities to gain value.

Palmer, activist for capitalism, to speak in Wichita

I’d like to call your attention to, and invite you to attend, a lecture next week in Wichita. The speaker is Tom G. Palmer, and he will be speaking on topics from his recent book The Morality of Capitalism.

I met Tom last year when I spent my summer vacation attending Cato University, which Tom is director of. He is a fascinating speaker. His background includes feats such as smuggling books, photocopiers, and faxes into the Soviet Union. Currently he is Vice President for International Programs at the Atlas Economic Research Foundation, General Director of the Atlas Global Initiative for Free Trade, Peace, and Prosperity, a Senior Fellow at the Cato Institute, and Director of Cato University. He travels across the world speaking on political science, public choice, civil society, and the moral, legal, and historical foundations of individual rights. His appearance in Wichita is presented by the Kansas Policy Institute.

The Wichita event is on Wednesday May 16th, at the Hyatt Regency Hotel. A reception begins at 5:30 pm, with the presentation at 6:30 pm. He’s also appearing in Overland Park the day before.

RSVP is requested by e-mailing James Franko at james.franko@kansaspolicy.org or by calling 316-634-0218. Or, click here to RSVP online.

For more information and to register for these events see The Morality of Capitalism.

Myth: Privatizaton and marketization in post-communist societies were corrupt, which shows that markets are corrupting

When thinking about the difference between government action and action taken by free people trading voluntarily in markets, we find that many myths abound. Tom G. Palmer, who is Vice President for International Programs at the Atlas Economic Research Foundation, General Director of the Atlas Global Initiative for Free Trade, Peace, and Prosperity, a Senior Fellow at the Cato Institute, and Director of Cato University, has written an important paper that confronts these myths about markets. The eighteenth myth — Privatizaton and Marketization in Post-Communist Societies Were Corrupt, Which Shows that Markets Are Corrupting — and Palmer’s refutation is below. The complete series of myths and responses is at Twenty Myths about Markets.

Palmer is editor of the recent book The Morality of Capitalism. He will be in Overland Park and Wichita in May speaking on the moral case for capitalism. For more information and to register for these events see The Morality of Capitalism. An eleven minute podcast of Palmer speaking on this topic is at The Morality of Capitalism.

Myth: Privatizaton and Marketization in Post-Communist Societies Were Corrupt, Which Shows that Markets Are Corrupting

Myth: Privatization campaigns are almost always rigged. It’s a game that just awards the best state assets to the most ruthless and corrupt opportunists. The whole game of privatization and marketization is dirty and represents nothing more than theft from the people.

Tom G. Palmer: A variety of formerly socialist states that have created privatization campaigns have had quite varied outcomes. Some have generated very successful market orders. Others have slipped back toward authoritarianism and have seen the “privatization” processes result in new elites gaining control of both the state and private businesses, as in the emerging “Siloviki” system of Russia. The dirtiness of the dirty hands that profited from rigged privatization schemes was a result of the preexisting lack of market institutions, notably the rule of law that is the foundation for the market. Creating those institutions is no easy task and there is no well known generally applicable technique that works in all cases. But the failure in some cases to fully realize the institutions of the rule of law is no reason not to try; even in the case of Russia, the deeply flawed privatization schemes that were instituted were an improvement over the one-party tyranny that preceded them and that collapsed from its own injustice and inefficiency.

Mere “privatization” in the absence of a functioning legal system is not the same as creating a market. Markets rest on a foundation of law; failed privatizations are not failures of the market, but failures of the state to create the legal foundations for markets.

Myth: When prices are liberalized and subject to market forces, they just go up

When thinking about the difference between government action and action taken by free people trading voluntarily in markets, we find that many myths abound. Tom G. Palmer, who is Vice President for International Programs at the Atlas Economic Research Foundation, General Director of the Atlas Global Initiative for Free Trade, Peace, and Prosperity, a Senior Fellow at the Cato Institute, and Director of Cato University, has written an important paper that confronts these myths about markets. The seventeenth myth — When Prices are Liberalized and Subject to Market Forces, They Just Go Up — and Palmer’s refutation is below. The complete series of myths and responses is at Twenty Myths about Markets.

Palmer is editor of the recent book The Morality of Capitalism. He will be in Overland Park and Wichita in May speaking on the moral case for capitalism. For more information and to register for these events see The Morality of Capitalism. An eleven minute podcast of Palmer speaking on this topic is at The Morality of Capitalism.

Myth: When Prices are Liberalized and Subject to Market Forces, They Just Go Up

Myth: The fact is that when prices are left to market forces, without government controls, they just go up, meaning that people can afford less and less. Free-market pricing is just another name for high prices.

Tom G. Palmer: Prices that are controlled at below market levels do tend to rise, at least over the short time, when they are freed. But there is much more to the story than that. For one thing, some controlled prices are kept above the market level, so that when they are freed, they tend to fall. Moreover, when looking at money prices that are controlled by state power, it’s important to remember that the money that changes hands over the table is not usually the only price paid by those who successfully purchase the goods. If the goods are rationed by queuing, then the time spent waiting in line is a part of what people have to spend to get the goods. (Notably, however, that waiting time represents pure waste, since it’s not time that is somehow transferred to producers to induce them to make more of the goods to satisfy the unmet demand.) If corrupt officials have their hands open, there are also the payments under the table that have to be added to the payment that is made over the table. The sum of the legal payment, the illegal bribes, and the time spent waiting in lines when maximum prices are imposed by the state on goods and services is quite often higher than the price that people would agree on through the market. Moreover, the money spent on bribes and the time spent on waiting are wasted — they are spent by consumers but not received by producers, so they provide no incentive for producers to produce more and thereby alleviate the shortage caused by price controls.

While money prices may go up in the short time when prices are freed, the result is to increase production and diminish wasteful rationing and corruption, with the result that total real prices — expressed in terms of a basic commodity, human labor time — goes down. The amount of time that a person had to spend laboring to earn a loaf of bread in 1800 was a serious fraction of his or her laboring day; as wages have gone up and up and up and up, the amount of working time necessary to buy a loaf of bread has fallen to just a few minutes in wealthy countries. Measured in terms of labor, the prices of all other goods have fallen dramatically, with one exception: labor itself. As labor productivity and wages rise, hiring human labor becomes more expensive, which is why modestly well off people in poor countries commonly have servants, whereas even very wealthy people in rich countries find it much cheaper to buy machines to wash their clothes and dishes. The result of free markets is a fall in the price of everything else in terms of labor, and a rise in the price of labor in terms of everything else.

Myth: Markets only benefit the rich and talented

When thinking about the difference between government action and action taken by free people trading voluntarily in markets, we find that many myths abound. Tom G. Palmer, who is Vice President for International Programs at the Atlas Economic Research Foundation, General Director of the Atlas Global Initiative for Free Trade, Peace, and Prosperity, a Senior Fellow at the Cato Institute, and Director of Cato University, has written an important paper that confronts these myths about markets. The sixteenth myth — Markets Only Benefit the Rich and Talented — and Palmer’s refutation is below. The complete series of myths and responses is at Twenty Myths about Markets.

Palmer is editor of the recent book The Morality of Capitalism. He will be in Overland Park and Wichita in May speaking on the moral case for capitalism. For more information and to register for these events see The Morality of Capitalism. An eleven minute podcast of Palmer speaking on this topic is at The Morality of Capitalism.

Myth: Markets Only Benefit the Rich and Talented

Myth: The rich get richer and the poor get poorer. If you want to make a lot of money, you have to start out with a lot. In the race of the market for profits, those who start out ahead reach the finish line first.

Tom G. Palmer: Market processes aren’t races, which have winners and losers. When two parties voluntarily agree to exchange, they do so because they both expect to benefit, not because they hope they will win and the other will lose. Unlike in a race, in an exchange, if one person wins, it doesn’t mean that the other has to lose. Both parties gain. The point is not to “beat” the other, but to gain through voluntary cooperative exchange; in order to induce the other person to exchange, you have to offer a benefit to him or her, as well.

Being born to wealth may certainly be a good thing, something the citizens of wealthy countries probably do not appreciate as much as do those who seek to emigrate from poor countries to rich countries; the latter usually understand the benefits of living in a wealthy society better than those who are born to it. But within a free market, with freedom of entry and equal rights for all buyers and sellers, those who were good at meeting market demands yesterday may not be the same as those who will be good at meeting market demand tomorrow. Sociologists refer to the “circulation of elites” that characterizes free societies; rather than static elites that rest on military power, caste membership, or tribal or family connection, the elites of free societies — including artistic elites, cultural elites, scientific elites, and economic elites — are open to new members and rarely pass on membership to the children of members, many of whom move from the upper classes to the middle classes.

Wealthy societies are full of successful people who left behind countries where markets are severely restricted or hampered by special favors for the powerful, by protectionism, and by mercantilistic monopolies and controls, where opportunities for advancement in the market are limited. They left those societies with little or nothing and found success in more open and market-oriented societies, such as the USA, the United Kingdom, and Canada. What was the difference between the societies they left and those they joined?: freedom to compete in the market. How sad for poor countries it is that the mercantilism and restrictions in their home countries drive them abroad, so they can not stay at home and enrich their neighbors and friends by putting their entrepreneurial drive to work.

Generally, in countries with freer markets, the greatest fortunes are made, not by satisfying the desires of the rich, but by satisfying the desires of the more modest classes. From Ford Motors to Sony to Wal-mart, great companies that generate great fortunes tend to be those that cater, not to the tastes of the richest, but to the lower and middle classes.

Free markets tend to be characterized by a “circulation of elites,” with no one guaranteed a place or kept from entering by accident of birth. The phrase “the rich get richer and the poor gets poorer” applies, not to free markets, but to mercantilism and political cronyism, that is, to systems in which proximity to power determines wealth. Under markets, the more common experience is that the rich do well (but may not stay “rich” by the standards of their society) and the poor get a lot richer, with many moving into the middle and upper classes. At any given moment, by definition 20% of the population will be in the lowest quintile of income and 20% will be in the highest quintile. But it does not follow either that those quintiles will measure the same amount of income (as incomes of all income groups rise in expanding economies) or that the income categories will be filled by the same people. The categories are rather like rooms in a hotel or seats on a bus; they are filled by someone, but not always by the same people. When income distributions in market-oriented societies are studied over time, a great deal of income mobility is revealed, with remarkable numbers of people moving up and down in the income distributions. What is most important, however, is that prosperous market economies see all incomes rise, from the lowest to the highest.

Myth: Markets debase culture and art

When thinking about the difference between government action and action taken by free people trading voluntarily in markets, we find that many myths abound. Tom G. Palmer, who is Vice President for International Programs at the Atlas Economic Research Foundation, General Director of the Atlas Global Initiative for Free Trade, Peace, and Prosperity, a Senior Fellow at the Cato Institute, and Director of Cato University, has written an important paper that confronts these myths about markets. The fifteenth myth — Markets Debase Culture and Art — and Palmer’s refutation is below. The complete series of myths and responses is at Twenty Myths about Markets.

Palmer is editor of the recent book The Morality of Capitalism. He will be in Overland Park and Wichita in May speaking on the moral case for capitalism. For more information and to register for these events see The Morality of Capitalism. An eleven minute podcast of Palmer speaking on this topic is at The Morality of Capitalism.

Myth: Markets Debase Culture and Art

Myth: Art and culture are responses to the higher elements of the human soul and, as such, cannot be bought and sold like tomatoes or shirt buttons. Leaving art to the market is like leaving religion to the market, a betrayal of the inherent dignity of art, as of religion. Moreover, as art and culture are opened more and more to competition on international markets, the result is their debasement, as traditional forms are abandoned in the pursuit of the almighty dollar or euro.

Tom G. Palmer: Most art has been and is produced for the market. Indeed, the history of art is largely the history of innovation through the market in response to new technologies, new philosophies, new tastes, and new forms of spirituality. Art, culture, and the market have been intimately connected for many centuries. Musicians charge fees for people to attend their concerts, just as vegetable mongers charge for tomatoes or tailors charge to replace buttons on suits. In fact, the creation of wider markets for music, film, and other forms of art by the creation of records, cassettes, CDs, DVDs, and now iTunes and mp3 files allows more and more people to be exposed to more and more varied art, and for artists to create more artistic experiences, to create more hybrid forms of art, and to earn more income. Unsurprisingly, most of the art produced in any given year won’t stand the test of time; that creates a false perspective on the part of those who condemn contemporary art as “trashy,” in comparison to the great works of the past; what they are comparing are the best works winnowed out from hundreds of years of production to the mass of works produced in the past year. Had they included all of the works that did not stand the test of time and were not remembered, the comparison would probably look quite different.

What accounts for the survival of the best is precisely the competitive process of markets for art. Comparing the entirety of contemporary artistic production with the very best of the best from past centuries is not the only error people make when evaluating markets for art. Another error common to observers from wealthy societies who visit poor societies is the confusion of the poverty of poor societies with their cultures. When wealthy visitors see people in countries that are poor-but-growing-economically using cell phones and flipping open laptops, they complain that their visit is not as “authentic” as the last one. As people become richer through market interactions made possible by increasing liberalization or globalization, such as the introduction of cell telephony, antiglobalization activists from rich countries complain that the poor are being “robbed” of their culture. But why equate culture with poverty? The Japanese went from poverty to wealth and it would be hard to argue that they are any less Japanese as a result. In fact, their greater wealth has made possible the spread of awareness of Japanese culture around the world. In India, as incomes are rising, the fashion industry is responding by turning to traditional forms of attire, such as the sari, and adapting, updating, and applying to it aesthetic criteria of beauty and form. The very small country of Iceland has managed to maintain a high literary culture and their own theater and movie industry because per capita incomes are quite high, allowing them to dedicate their wealth to perpetuating and developing their culture.

Finally, although religious belief is not “for sale,” free societies do leave religion to the same principles — equal rights and freedom of choice — as those at the foundation of the free market. Churches, mosques, synagogues, and temples compete with each other for adherents and for support. Unsurprisingly, those European countries that provide official state support of churches tend to have very low church participation, whereas countries without state support of religion tend to have higher levels of church participation. The reason is not so hard to understand: churches that have to compete for membership and support have to provide services — sacramental, spiritual, and communal — to members, and that greater attention to the needs of the membership tends to create more religiosity and participation. Indeed, that’s why the official established state church of Sweden lobbied to be disestablished in the year 2000; as an unresponsive part of the state bureaucracy, the church was losing connection with its members and potential members and was, in effect, dying.

There is no contradiction between the market and art and culture. Market exchange is not the same as artistic experience or cultural enrichment, but it is a helpful vehicle for advancing both.

Myth: Markets rest on the principle of the survival of the fittest

When thinking about the difference between government action and action taken by free people trading voluntarily in markets, we find that many myths abound. Tom G. Palmer, who is Vice President for International Programs at the Atlas Economic Research Foundation, General Director of the Atlas Global Initiative for Free Trade, Peace, and Prosperity, a Senior Fellow at the Cato Institute, and Director of Cato University, has written an important paper that confronts these myths about markets. The fourteenth myth — Markets Rest on the Principle of the Survival of the Fittest — and Palmer’s refutation is below. The complete series of myths and responses is at Twenty Myths about Markets.

Palmer is editor of the recent book The Morality of Capitalism. He will be in Overland Park and Wichita in May speaking on the moral case for capitalism. For more information and to register for these events see The Morality of Capitalism. An eleven minute podcast of Palmer speaking on this topic is at The Morality of Capitalism.

Myth: Markets Rest on the Principle of the Survival of the Fittest

Myth: Just like the law of the jungle, red in tooth and claw, the law of the market means survival of the fittest. Those who cannot produce to market standards fall by the wayside and are trampled underfoot.

Tom G. Palmer: Invocations of evolutionary principles such as “survival of the fittest” in the study of living systems and in the study of human social interaction lead to confusion unless they identify what it is in each case that survives. In the case of biology, it is the individual animal and its ability to reproduce itself. A rabbit that is eaten by a cat because it’s too slow to escape isn’t going to have any more offspring. The fastest rabbits will be the ones to reproduce. When applied to social evolution, however, the unit of survival is quite different; it’s not the individual human being, but the form of social interaction, such as a custom, an institution, or a firm, that is “selected” in the evolutionary struggle. When a business firm goes out of business, it “dies,” that is to say, that particular form of social cooperation “dies,” but that certainly doesn’t mean that the human beings who made up the firm — as investors, owners, managers, employees, and so on — die, as well. A less efficient form of cooperation is replaced by a more efficient form. Market competition is decidedly unlike the competition of the jungle. In the jungle animals compete to eat each other, or to displace each other. In the market, entrepreneurs and firms compete with each other for the right to cooperate with consumers and with other entrepreneurs and firms. Market competition is not competition for the opportunity to live; it is competition for the opportunity to cooperate.

Myth: Markets can not meet human needs, such as health, housing, education, and food

When thinking about the difference between government action and action taken by free people trading voluntarily in markets, we find that many myths abound. Tom G. Palmer has written an important paper that confronts these myths about markets. The thirteenth myth — Markets Can Not Meet Human Needs, Such as Health, Housing, Education, and Food — and Palmer’s refutation is below. The complete series of myths and responses is at Twenty Myths about Markets.

Palmer is editor of the recent book The Morality of Capitalism. He will be in Overland Park and Wichita in May speaking on the moral case for capitalism. For more information and to register for these events see The Morality of Capitalism. An eleven minute podcast of Palmer speaking on this topic is at The Morality of Capitalism.

Myth: Markets Can Not Meet Human Needs, Such as Health, Housing, Education, and
Food

Myth: Goods should be distributed according to principles appropriate to their nature. Markets distribute goods according to ability to pay, but health, housing, education, food, and other basic human needs, precisely because they are needs, should be distributed according to need, not ability to pay.

Tom G. Palmer: If markets do a better job of meeting human needs than other principles, that is, if more people enjoy higher standards of living under markets than under socialism, it seems that the allocation mechanism under markets does a better job of meeting the criterion of need, as well. As noted above, the incomes of the poorest tend to rise rapidly with the degree of market freedom, meaning that the poor have more resources with which to satisfy their needs. (Naturally, not all needs are directly related to income; true friendship and love certainly are not. But there is no reason to think that those are more “equitably” distributed by coercive mechanisms, either, or even that they can be distributed by such mechanisms.)

Moreover, while assertions of “need” tend to be rather rubbery claims, as are assertions of “ability,” willingness to pay is easier to measure. When people bid with their own money for goods and services, they are telling us how much they value those goods and services relative to other goods and services. Food, certainly a more basic need than education or health care, is provided quite effectively through markets. In fact, in those countries where private property was abolished and state allocation substituted for market allocation, the results were famine and even cannibalism. Markets meet human needs for most goods, including those that respond to basic human needs, better than do other mechanisms.

Satisfaction of needs requires the use of scarce resources, meaning that choices have to be made about their allocation. Where markets are not allowed to operate, other systems and criteria for rationing scarce resources are used, such as bureaucratic allocation, political pull, membership in a ruling party, relationship to the president or the main holders of power, or bribery and other forms of corruption. It is hardly obvious that such criteria are better than the criteria evolved by markets, nor that they generate more equality; the experience is rather the opposite.

Myth: Markets lead to more inequality than non-market processes

When thinking about the difference between government action and action taken by free people trading voluntarily in markets, we find that many myths abound. Tom G. Palmer has written an important paper that confronts these myths about markets. The twelfth myth — Markets Lead to More Inequality than Non-Market Processes — and Palmer’s refutation is below. The complete series of myths and responses is at Twenty Myths about Markets.

Palmer is editor of the recent book The Morality of Capitalism. He will be in Overland Park and Wichita in May speaking on the moral case for capitalism. For more information and to register for these events see The Morality of Capitalism. An eleven minute podcast of Palmer speaking on this topic is at The Morality of Capitalism.

Myth: Markets Lead to More Inequality than Non-Market Processes

Myth: By definition, markets reward ability to satisfy consumer preferences and as abilities differ, so incomes will differ. Moreover, by definition, socialism is a state of equality, so every step toward socialism is a step toward equality.

Tom G. Palmer: If we want to understand the relationships between policies and outcomes, it should be kept in mind that property is a legal concept; wealth is an economic concept. The two are often confused, but they should be kept distinct. Market processes regularly redistribute wealth on a massive scale. In contrast, unwilling redistribution of property (when undertaken by individual citizens, it’s known as “theft”) is prohibited under the rules that govern free markets, which require that property be well defined and legally secure. Markets can redistribute wealth, even when property titles remain in the same hands. Every time the value of an asset (in which an owner has a property right) changes, the wealth of the asset owner changes. An asset that was worth 600 Euros yesterday may today be worth only 400 Euros. That’s a redistribution of 200 Euros of wealth through the market, although there has been no redistribution of property. So markets regularly redistribute wealth and in the process give owners of assets incentives to maximize their value or to shift their assets to those who will. That regular redistribution, based on incentives to maximize total value, represents transfers of wealth on a scale unthinkable for most politicians. In contrast, while market processes redistribute wealth, political processes redistribute property, by taking it from some and giving it to others; in the process, by making property less secure, such redistribution tends to make property in general less valuable, that is, to destroy wealth. The more unpredictable the redistribution, the greater the loss of wealth caused by the threat of redistribution of property.

Equality is a characteristic that can be realized along a number of different dimensions, but generally not across all. For example, people can all be equal before the law, but if that is the case, it is unlikely that they will have exactly equal influence over politics, for some who exercise their equal rights to freedom of speech will be more eloquent or energetic than others, and thus more influential. Similarly, equal rights to offer goods and services on free markets may not lead to exactly equal incomes, for some may work harder or longer (because they prefer income to leisure) than others, or have special skills for which others will pay extra. On the flip side, the attempt to achieve through coercion equality of influence or equality of incomes will entail that some exercise more authority or political power than others, that is, the power necessary to bring about such outcomes. In order to bring about a particular pattern of outcomes, someone or some group must have the “God’s Eye” view of outcomes necessary to redistribute, to see a lack here and a surplus there and thus to take from here and move to there. As powers to create equal outcomes are concentrated in the hands of those entrusted with them, as was the case in the officially egalitarian Soviet Union, those with unequal political and legal powers find themselves tempted to use those powers to attain unequal incomes or access to resources. Both logic and experience show that conscious attempts to attain equal or “fair” incomes, or some other pattern other than what the spontaneous order of the market generates, are generally self-defeating, for the simple reason that those who hold the power to redistribute property use it to benefit themselves, thus converting inequality of political power into other sorts of inequality, whether honors, wealth, or something else. Such was certainly the experience of the officially communist nations and such is the path currently being taken by other nations, such as Venezuela, in which total power is being accumulated in the hands of one man, Hugo Chavez, who demands such massively unequal power, ostensibly in order to create equality of wealth among citizens.

According to the data in the 2006 Economic Freedom of the World Report, reliance on free markets is weakly correlated to income inequality (from the least free to the most free economies the world over, divided into quartiles, the percentage of income received by the poorest ten percent varies from an average of 2.2% to an average of 2.5%), but it is very strongly correlated to the levels of income of the poorest ten percent (from the least free to the most free economies the world over, divided into quartiles, the average levels of income received by the poorest ten percent are $826, $1,186, $2,322, and $6,519). Greater reliance on markets seems to have little impact on income distributions, but it does substantially raise the incomes of the poor and it is likely that many of the poor would certainly consider that a good thing.

Myth: Too much reliance on markets is as silly as too much reliance on socialism: the best is the mixed economy

When thinking about the difference between government action and action taken by free people trading voluntarily in markets, we find that many myths abound. Tom G. Palmer has written an important paper that confronts these myths about markets. The eleventh myth — Too Much Reliance on Markets Is As Silly as Too Much Reliance on Socialism: the Best is the Mixed Economy — and Palmer’s refutation is below. The complete series of myths and responses is at Twenty Myths about Markets.

Palmer is editor of the recent book The Morality of Capitalism. He will be in Overland Park and Wichita in May speaking on the moral case for capitalism. For more information and to register for these events see The Morality of Capitalism. An eleven minute podcast of Palmer speaking on this topic is at The Morality of Capitalism.

Myth: Too Much Reliance on Markets Is As Silly as Too Much Reliance on Socialism: the
Best is the Mixed Economy

Myth: Most people understand that it’s unwise to put all your eggs in one basket. Prudent investors diversify their portfolios and it’s just as reasonable to have a diversified “policy portfolio,” as well, meaning a mix of socialism and markets.

Tom G. Palmer: Prudent investors who don’t have inside information do indeed diversify their portfolios against risk. If one stock goes down, another may go up, thus evening out the loss with a gain. Over the long run, a properly diversified portfolio will grow. But policies aren’t like that. Some have been demonstrated time and time gain to fail, while others have been demonstrated to succeed. It would make no sense to have a “diversified investment portfolio” made up of stocks in firms that are known to be failing and stocks in firms that are known to be succeeding; the reason for diversification is that one doesn’t have any special knowledge of which firms are more likely to be profitable or unprofitable.

Studies of decades of economic data carried out annually by the Fraser Institute of Canada and a world wide network of research institutes have shown consistently that greater reliance on market forces leads to higher per capita incomes, faster economic growth, lower unemployment, longer life spans, lower infant mortality, falling rates of child labor, greater access to clean water, health care, and other amenities of modern life, including cleaner environments, and improved governance, such as lower rates of official corruption and more democratic accountability. Free markets generate good results.

Moreover, there is no “well balanced” middle of the road. State interventions into the market typically lead to distortions and even crises, which then are used as excuses for yet more interventions, thus driving policy one direction or another. For example, a “policy portfolio” that included imprudent monetary policy, which increases the supply of money faster than the economy is growing, will lead to rising prices. History has shown repeatedly that politicians tend to respond, not by blaming their own imprudent policies, but by blaming an “overheated economy” or “unpatriotic speculators” and imposing controls on prices. When prices are not allowed to be corrected by supply and demand (in this case, the increased supply of money, which tends to cause the price of money, as expressed in terms of commodities, to fall), the result is shortages of goods and services, as more people seek to buy limited supplies of goods at the below-market price than producers are willing to supply at that price. In addition, the lack of free markets leads people to shift to black markets, under-the-table-bribes of officials, and other departures from the rule of law. The resulting mixture of shortage and corruption then typically induces yet greater tendencies toward authoritarian assertions of power. The effect of creating a “policy portfolio” that includes such proven bad policies is to undermine the economy, to create corruption, and even to undermine constitutional democracy.

Classical liberalism: Liberty, individualism, and civil society

In a short video, Nigel Ashford of Institute for Humane Studies explains the tenets of classical liberalism. Not to be confused with modern American liberalism or liberal Republicans, classical liberalism places highest value on liberty and the individual. Modern American liberals, or progressives as they often prefer to be called, may value some of these principles, but most, such as free markets and limited government — and I would add individualism and toleration — are held in disdain by them.

Here are the principles of classical liberalism that Ashford identifies:

Liberty is the primary political value. “When deciding what to do politically — what should the government do — classical liberals have one clear standard: Does this increase, or does it reduce the freedom of the individual?”

Individualism. “The individual is more important than the collective.”

Skepticism about power. “Government, for example, often claims ‘we’re forcing you to do X because it’s in your own interests to do so.’ Whereas very often, when people with power do that, it’s really because it’s good for themselves. Classical liberals believe that the individual is the best judge of their own interests.”

Rule of law.

Civil society. Classical liberals believe that problems can be dealt with best by voluntary associations and action.

Spontaneous order. “Many people seem to assume that order requires some institution, some body, to manipulate and organize things. Classical liberals don’t believe that. They believe that order can arise spontaneously. People through their voluntary interaction create the rules by which people can live by.”

Free markets. “Economic exchange should be left to voluntary activity between individuals. … We need private property to be able to do that. … History show us that leaving things to free markets rather than government planning or organization, increases prosperity, reduces poverty, increases jobs, and provides good that people want to buy.”

Toleration. “Toleration is the belief that one should not interfere with things on which one disapproves. … It’s a question of having certain moral principles (“I think this action is wrong”), but I will not try and force my opinions — for example through government — to stop the things I disapprove of.”

Peace. Through free movement of capital, labor, goods, services, and ideas, we can have a world based on peace rather than conflict and war.

Limited government. “There are very few things the government should do. The goal of government is simply to protect life, liberty, and property. Anything beyond that is not justifiable.”

This video is available on YouTube through LearnLiberty.org, a site which has many other informative videos. Besides this video, other resources on classical liberalism include What Is Classical Liberalism? by Ralph Raico, What Is Classical Liberalism? by John C. Goodman, Christianity, Classical Liberalism are Liberty’s Foundations by Leonard P. Liggio, What is Libertarian? at the Institute for Humane Studies, Why I, Too, Am Not a Conservative: The Normative Vision of Classical Liberalism (review of James M. Buchanan book by William A. Niskanen), Myths of Individualism by Tom G. Palmer, and Palmer’s book Realizing Freedom: Libertarian Theory, History, and Practice.

Myth: Markets lead to disastrous economic cycles, such as the Great Depression

When thinking about the difference between government action and action taken by free people trading voluntarily in markets, we find that many myths abound. Tom G. Palmer has written an important paper that confronts these myths about markets. The tenth myth — Markets Lead to Disastrous Economic Cycles, Such as the Great Depression — and Palmer’s refutation is below. The complete series of myths and responses is at Twenty Myths about Markets.

Palmer is editor of the recent book The Morality of Capitalism. He will be in Overland Park and Wichita in May speaking on the moral case for capitalism. For more information and to register for these events see The Morality of Capitalism. An eleven minute podcast of Palmer speaking on this topic is at The Morality of Capitalism.

Myth: Markets Lead to Disastrous Economic Cycles, Such as the Great Depression

Myth: Reliance on market forces leads to cycles of “boom and bust,” as investor overconfidence feeds on itself, leading to massive booms in investment that are inevitably followed by contractions of production, unemployment, and a generally worsening economic condition.

Tom G. Palmer: Economic cycles of “boom and bust” are sometimes blamed on reliance on markets. The evidence, however, is that generalized overproduction is not a feature of markets; when more goods and services are produced, prices adjust and the result is general affluence, not a “bust.” When this or that industry expands beyond the ability of the market to sustain profitability, a process of self-correction sets in and profit signals lead resources to be redirected to other fields of activity. There is no reason inherent in markets for such correction to apply to all industries; indeed, it is self-contradictory (for if investment is being taken away from all and redirected to all, then it’s not being taken away from all in the first place).

Nonetheless, prolonged periods of general unemployment are possible when governments distort price systems through foolish manipulation of monetary systems, a policy error that is often combined with subsidies to industries that should be contracting and wage and price controls that keep the market from adjusting, thus prolonging the unemployment. Such was the case of the Great Depression that lasted from 1929 to the end of World War II, which economists (such as Nobel Prize winner Milton Friedman) showed was caused by a massive and sudden contraction in the money supply by the U.S. Federal Reserve system, which was pursuing politically set goals. The general contraction was then deepened by the rise in protectionism, which extended the suffering worldwide, and prolonged greatly by such programs as the National Recovery Act, programs to keep farm prices high (by destroying huge quantities of agricultural products and restricting supply), and other “New Deal” programs that were aimed at keeping market forces from correcting the disastrous effects of the government’s policy errors.

More recent crashes, such as the Asian financial crisis of 1997, have been caused by imprudent monetary and exchange rate policies that distorted the signals to investors. Market forces corrected the policy failures of governments, but the process was not without hardship; the cause of the hardship was not the medicine that cured the disease, but the bad monetary and exchange rate policies of governments that caused it in the first place.

With the adoption of more prudent monetary policies by governmental monetary authorities, such cycles have tended to even out. When combined with greater reliance on market adjustment processes, the result has been a reduction in the frequency and severity of economic cycles and long-term and sustained improvement in those countries that have followed policies of freedom of trade, budgetary restraint, and the rule of law.

Myth: Markets don’t work in developing countries

When thinking about the difference between government action and action taken by free people trading voluntarily in markets, we find that many myths abound. Tom G. Palmer has written an important paper that confronts these myths about markets. The ninth myth — Markets Don’t Work in Developing Countries — and Palmer’s refutation is below. The complete series of myths and responses is at Twenty Myths about Markets.

Palmer is editor of the recent book The Morality of Capitalism. He will be in Overland Park and Wichita in May speaking on the moral case for capitalism. For more information and to register for these events see The Morality of Capitalism. An eleven minute podcast of Palmer speaking on this topic is at The Morality of Capitalism.

Myth: Markets Don’t Work in Developing Countries

Myth:Markets work well in countries with well developed infrastructures and legal systems, but in their absence developing countries simply cannot afford recourse to markets. In such cases, state direction is necessary, at least until a highly developed infrastructure and legal system is developed that could allow room for markets to function.

Tom G. Palmer: In general, infrastructure development is a feature of the wealth accumulated through markets, not a condition for markets to exist, and the failure of a legal system is a reason why markets are underdeveloped, but that failure is a powerful reason to reform the legal system so it could provide the foundation for the development of markets, not to postpone legal reform and market development. The only way to achieve the wealth of developed countries is to create the legal and institutional foundations for markets so that entrepreneurs, consumers, investors, and workers can freely cooperate to create wealth.

All currently wealthy countries were once very poor, some within living memory. What needs explanation is not poverty, which is the natural state of mankind, but wealth. Wealth has to be created and the best way to ensure that wealth is created is to generate the incentives for people to do so. No system better than the free market, based on well defined and legally secure property rights and legal institutions to facilitate exchange, has ever been discovered for generating incentives for wealth creation. There is one path out of poverty, and that is the path of wealth creation through the free market. The term “developing nation” is frequently misapplied when it is applied to nations whose governments have rejected markets in favor of central planning, state ownership, mercantilism, protectionism, and special privileges. Such nations are not, in fact, developing at all. The nations that are developing, whether starting from relatively wealthy or relatively impoverished positions, are those that have created legal institutions of property and contract, freed markets, and limited the powers, the budget, and the reach of the state power.

Walter Williams on government in a free society

Walter E.
Williams

Last September in Wichita economist Walter E. Williams spoke on the legitimate role of government in a free society, touching on the role of government as defined in the Constitution, the benefits of capitalism and private property, and the recent attacks on individual freedom and limited government.

Williams’ evening lecture was held in the Mary Jane Teall Theater at Century II, and all but a handful of its 652 seats were occupied. It was presented by the Bill of Rights Institute and underwritten by the Fred and Mary Koch Foundation.

Williams said that one of the justifications for the growth of government — far beyond the visions of the founders of America — is to promote fairness and justice. While these are worthy goals, Williams said we must ask what is the meaning of fairness and justice, referring to the legitimate role of government in a free society.

In the Constitution, Williams said the founders specified the role of the federal government in Article 1 Section 8. This section holds a list that enumerates what Congress is authorized to do. If something is not on the list, Williams said Congress is not authorized to do it.

The Article 8 powers that Williams mentioned are to lay and collect taxes, duties, imposts, and excises; to pay the debts and provide for the common defense and general welfare of the United States; to borrow money on the credit of the United States; to coin money; to establish post-offices and post-roads; and to raise and support armies. It is regarding these powers, plus a few others, that Congress has taxing and spending authority. “Nowhere in the United States Constitution to we find authority for Congress to tax and spend for up to two-thirds to three-quarters of what Congress taxes and spends for today.”

Farm subsidies, handouts to banks, and food stamps are examples Williams gave of programs that are not authorized by the Constitution. “I think that we can safely say that we’ve made a significant departure from the constitutional principles of individual freedom and limited government that made us a rich nation in the first place.”

The institutions of private property and free enterprise are the embodiment of these principles, Williams said. But there have been many successful attacks on private property and free enterprise. Thomas Jefferson, Williams said, anticipated this when he wrote “The natural progress of things is for government to gain ground, and for liberty to yield.”

Taxation and spending are the ways government has gained ground. Taxes represent government claims on private property.

But an even better measure of what government has done is to look at spending. From 1787 to 1920, federal spending was only three percent of gross domestic product, except during wartime. Today, that figure is approaching 30 percent, Williams said: “The significance is that as time goes by, you and I own less and less of our most valuable property, namely ourselves and the fruits of our labor.”

In the realm of economics, Williams said that the founders thought that free markets and capitalism was the most effective social organization for promoting freedom, with capitalism defined as a system where people are free to pursue their own objectives as long as they do not violate the property rights of others. An often-trivialized benefit of capitalism and voluntary exchange is that it minimizes the capacity of one person to coerce another, he told the audience. This applies to the government, too.

But for the last half-century, Williams said that free enterprise has been under unrelenting attack by the American people. Whether they realize it or not, people have demonstrated a “deep and abiding contempt” for private property rights and individual liberty.

Williams said that ironically, capitalism is threatened not because of its failure, but because of its success. Capitalism has eliminated things that plagued mankind since the beginning of time — he mentioned disease, gross hunger, and poverty — and been so successful that “all other human wants appear to us to be at once inexcusable and unbearable.”

So now, in the name of ideals other than freedom and liberty, we pursue things like equality of income, race and sex balance, affordable housing, and medical care. “As a result of widespread control by our government in order to achieve these higher objectives, we are increasingly being subordinated to the point where personal liberty in our country is treated like dirt.”

This ultimately leads to tyranny and totalitarianism, he said. To those who might object to this strong and blunt conclusion, Williams asked this question: “Which way are we headed, tiny steps at a time: towards more liberty, or towards more government control of our lives?” He said that the answer, unambiguously, is the latter.

It is the tiny steps that concern Williams, as they ultimately lead to their destination. Quoting Hume, he said “It is seldom that liberty of any kind is lost all at once.” Instead, Williams said it is always lost bit by bit. If anyone wanted to take away all our liberties all at once, we would rebel. But not so when liberties are taken bit by bit, which is what is currently happening.

It is people’s desire for government to do good — helping the disadvantaged, elderly, failing businesses, college students — that leads to the attack on private property and economic freedom. But Williams explained that government has no resources of its own, meaning that for government to give one person money it must first — “through intimidation, threats, and coercion” — confiscate it from someone else.

Williams told the audience that if a private person used coercion to take money from someone and give it to another person, that act would universally be considered theft and a crime. It doesn’t matter how needy or deserving the recipient, it would still be theft. But Williams asked if there is any conceptual difference between that act and when agents of the government do the same. Williams says no, except that in the second act, where Congress takes the money, the theft is legal.

But mere legality doesn’t not make something moral. Slavery was legal in America for many years, but not moral. The purges of Stalin and Mao were legal under the laws of those countries. So legality does not equate to morality, Williams explained, and he said he cannot find a moral case for taking what belongs to one person and giving it to another to whom it does not belong.

Charity is “praiseworthy and laudable” when it is voluntary, but it is worthy of condemnation when government reaches into others’ pockets for charity. Those who accept the forced takings are guilty, too, he explained.

“The essence of our relationship with government is coercion,” Williams told the audience. This, he said, represents our major problem as a nation today: We’ve come to accept the idea of government taking from one to give to another. But the blame, Williams said, does not belong with politicians — “at least not very much.” Instead, he said that the blame lies with us, the people who elect them to office in order to get things for us. A candidate who said he would do only the things that the Constitution authorizes would not have much of a chance at being elected.

The further problem is that if Kansans don’t elect officials who will bring federal dollars to Kansas, it doesn’t mean that Kansans will pay lower federal taxes. The money, taken from Kansans, will go to other states, leading to this conundrum: “That is, once legalized theft begins, it pays for everybody to participate.”

We face a moral dilemma, then. Williams listed several great empires that declined for doing precisely what we’re doing: “Bread and circuses,” or big government spending.

But there is a note — only one — of optimism, Williams believes. The first two years of the Obama administration, along with the Democratic Senate and House of Representatives, has been so brazen in their activities in “running roughshod over our liberties” that people are starting to argue and debate the Constitution. State attorneys general are bringing suits against the federal government over Obama’s health care plan. State legislatures are passing tenth amendment resolutions. The tea party and other grassroots movements give him optimism, too.

We must also ask ourselves if we are willing to give up the benefits we get from government, he said. But most people want cuts in spending on other people, not ourselves, as “ours is critical and vital to the national interest.” With all of us feeling this way, Williams said the country is in danger.

Young people have the greatest stake in the struggle for limited government and economic freedom, as the older generations have benefited from a relatively free country and the economic mobility that accompanied it. He said he’s afraid we’re losing that: “I’m hoping that future generations will not curse us for bequeathing to them a nation far less robust, far less free, than the nation that our parents and our ancestors bequeathed us.”

In answering a question from the audience, Williams said he would be afraid of a constitutional convention to be held today, as some are advocating. We wouldn’t be sending people like John Adams. Instead, he said we’d be sending people like Barney Frank and others who have “deep contempt” for personal freedom.

In response to a question on regulation, Williams said that regulations like health care and uncertainty over taxation cause businesses to be afraid to commit money to long term investments. Uncertainty “collapses the time horizon” causing firms to look for investments that pay off in the short term rather than the long term. This contributes to unemployment, he said.

Williams also talked about the economic history of America. From its beginning to 1930, there were recessions and depressions, but there were not calls for the federal government to intervene and stimulate the economy. It wasn’t until the Hoover administration and the New Deal that the federal government intervened in the economy in order to “fix” the economy. Williams said that what should have been a “sharp two or three-year downtown” was turned in to the Great Depression — which was not over until after World War II — by government intervention. The measures being taken today are similarly postponing the recovery, he said. He added that most serious economic downturns are caused by government. It’s also futile for the government to spend the country out of a recession, which he likened to taking water from the deep end of a pool to the shallow end in order to raise the level of the shallow end. Government taking money from one person, giving it to another, and expecting the economy to rise is similarly futile.

A question about mainstream media and their representation of the issues of today brought this response: “You have to make the assumption, I believe implied in your question, that those people are ignorant, and if only they knew better, they would change their behavior. Human ignorance is somewhat optimistic, because ignorance is curable through education. I’m very sure that many of these people want government control. The elite have always wanted government control, and the media was very responsible in getting President Obama elected.”

In an interview, I asked what President Obama should say in his jobs speech. Williams recommended the president should reduce regulation and lower taxes, especially capital gains and corporate income taxes. The spending programs of the past will not help. But Obama’s constituency will not favor this approach. The spending on roads and bridges benefits labor unions, for example.

On those who accept who accept and benefit from government spending, Williams said that “one of the tragedies of our nation” is that the growth of government has turned otherwise decent people into thieves, because they participate in the taking of what belongs to someone else. But because of the pervasiveness of government, sometimes this is unavoidable.

I asked do we need better politicians — ones who will work to limit government — or do we need different rules such as a balanced budget amendment or spending constraints? Williams said that the bulk of the blame lies with the people, as politicians are simply doing what voters ask them to do. “The struggle is to try to convince our fellow Americans on the moral superiority of liberty and its main ingredient, limited government.” Politicians will then follow, he added.

I asked if we’ve passed some sort of tipping point, where people look first to government rather than voluntary exchange through markets. He said perhaps so, and mentioned another problem: Close to 50 percent of Americans pay no federal income tax. These people become natural constituents for big-spending politicians. As they pay no taxes — “no stake in the game” — they don’t care if taxes are raised or lowered.

On the issue of the subsidy being poured into downtown Wichita, Williams said the issue is an example of the “seen and unseen” problem identified by Frederic Bastiat. We easily see the things that government taxation and intervention builds, such as a convention center. But what is not easily seen is what people would have done with the money that was taken from them through taxation. While the money taken from each person may be small, it adds up.

On government funding for arts, an issue in Kansas at this time, Williams said that it ought to be an insult to artists that their work has to be funded through government forcing people to pay, as opposed to voluntary payments.

Born in Philadelphia, Pennsylvania, Dr. Walter E. Williams holds a B.A. in economics from California State University, Los Angeles, and M.A. and Ph.D. degrees in economics from UCLA. He has served on the faculty of George Mason University in Fairfax, Virginia, as John M. Olin Distinguished Professor of Economics, since 1980. His website is Walter Williams Home Page.

Myth: The more complex a social order is, the less it can rely on markets and the more it needs government direction

When thinking about the difference between government action and action taken by free people trading voluntarily in markets, we find that many myths abound. Tom G. Palmer has written an important paper that confronts these myths about markets. The eighth myth — The More Complex a Social Order Is, the Less It Can Rely on Markets and the More It Needs Government Direction — and Palmer’s refutation is below. The complete series of myths and responses is at Twenty Myths about Markets.

Palmer is editor of the recent book The Morality of Capitalism. He will be in Overland Park and Wichita in May speaking on the moral case for capitalism. For more information and to register for these events see The Morality of Capitalism. An eleven minute podcast of Palmer speaking on this topic is at The Morality of Capitalism.

Myth: The More Complex a Social Order Is, the Less It Can Rely on Markets and the More
It Needs Government Direction

Myth: Reliance on markets worked fine when society was less complicated, but with the tremendous growth of economic and social connections, government is necessary to direct and coordinate the actions of so many people.

If anything, the opposite is true. A simple social order, such as a band of hunters or gatherers, might be coordinated effectively by a leader with the power to compel obedience. But as social relations become more complex, reliance on voluntary market exchange becomes more — not less — important. A complex social order requires the coordination of more information than any mind or group of minds could master. Markets have evolved mechanisms to transmit information in a relatively low cost manner; prices encapsulate information about supply and demand in the form of units that are comparable among different goods and services, in ways that voluminous reports by government bureaucracies cannot. Moreover, prices translate across languages, social mores, and ethnic and religious divides and allow people to take advantage of the knowledge possessed by unknown persons thousands of miles away, with whom they will never have any other kind of relationship. The more complex an economy and society, the more important reliance on market mechanisms becomes.

Myth: Markets don’t work (or are inefficient) when there are negative or positive externalities

When thinking about the difference between government action and action taken by free people trading voluntarily in markets, we find that many myths abound. Tom G. Palmer has written an important paper that confronts these myths about markets. The seventh myth — Markets Don’t Work (or Are Inefficient) When There Are Negative or Positive Externalities — and Palmer’s refutation is below. The complete series of myths and responses is at Twenty Myths about Markets.

Palmer is editor of the recent book The Morality of Capitalism. He will be in Overland Park and Wichita in May speaking on the moral case for capitalism. For more information and to register for these events see The Morality of Capitalism.

Myth: Markets Don’t Work (or Are Inefficient) When There Are Negative or Positive Externalities

Myth: Markets only work when all of the effects of action are born by those who make the decisions. If people receive benefits without contributing to their production, markets will fail to produce the right amount. Similarly, if people receive “negative benefits,” that is, if they are harmed and those costs are not taken into account in the decision to produce the goods, markets will benefit some at the expense of others, as the benefits of the action go to one set of parties and the costs are borne by another.

Tom G. Palmer: The mere existence of an externality is no argument for having the state take over some activity or displace private choices. Fashionable clothes and good grooming generate plenty of positive externalities, as others admire those who are well clothed or groomed, but that’s no reason to turn choice of or provision of clothing and grooming over to the state. Gardening, architecture, and many other activities generate positive externalities on others, but people undertake to beautify their gardens and their buildings just the same. In all those cases, the benefits to the producers alone — including the approbation of those on whom the positive externalities are showered — are sufficient to induce them to produce the goods. In other cases, such as the provision of television and radio broadcasts, the public good is “tied” to the provision of other goods, such as advertising for firms; the variety of mechanisms to produce public goods is as great as the ingenuity of the entrepreneurs who produce them.

More commonly, however, it’s the existence of negative externalities that leads people to question the efficacy or justice of market mechanisms. Pollution is the most commonly cited example. If a producer can produce products profitably because he imposes the costs of production on others who have not consented to be a part of the production process, say, by throwing huge amounts of smoke into the air or chemicals into a river, he will probably do so. Those who breathe the polluted air or drink the toxic water will bear the costs of producing the product, while the producer will get the benefits from the sale of the product. The problem in such cases, however, is not that markets have failed, but that they are absent. Markets rest on property and cannot function when property rights are not defined or enforced. Cases of pollution are precisely cases, not of market failure, but of government failure to define and defend the property rights of others, such as those who breathe polluted air or drink polluted water. When people downwind or downstream have the right to defend their rights, they can assert their rights and stop the polluters from polluting. The producer can install at his own expense equipment or technology to eliminate the pollution (or reduce it to tolerable and non-harmful levels), or offer to pay the people downwind or downstream for the rights to use their resources (perhaps offering them a better place to live), or he must stop producing the product, because he is harming the rights of others who will not accept his offers, showing that the total costs exceed the benefits. It’s property rights that make such calculations possible and that induce people to take into account the effects of their actions on others. And it’s markets, that is, the opportunity to engage in free exchange of rights, that allow all of the various parties to calculate the costs of actions.

Negative externalities such as air and water pollution are not a sign of market failure, but of government’s failure to define and defend the property rights on which markets rest.

Myth: Markets cannot possibly produce public (collective) goods

When thinking about the difference between government action and action taken by free people trading voluntarily in markets, we find that many myths abound. Tom G. Palmer has written an important paper that confronts these myths about markets. The sixth myth — Markets Cannot Possibly Produce Public (Collective) Goods — and Palmer’s refutation is below. The complete series of myths and responses is at Twenty Myths about Markets.

Palmer is editor of the recent book The Morality of Capitalism. He will be in Overland Park and Wichita in May speaking on the moral case for capitalism. For more information and to register for these events see The Morality of Capitalism.

Myth: Markets Cannot Possibly Produce Public (Collective) Goods

Myth: If I eat an apple, you can’t; consumption of an apple is purely rivalrous. If I show a movie and don’t want other people to see it, I have to spend money to build walls to keep out non-payers. Some goods, those for which consumption is non-rival and exclusion is costly, cannot be produced on markets, as everyone has an incentive to wait for others to produce them. If you produce a unit, I can just consume it, so I have no incentive to produce it. The same goes for you. The publicness of such goods requires state provision, as the only means to provide them. Such goods include not only defense and provision of a legal system, but also education, transportation, health care, and many other such goods. Markets can never be relied on to produce such goods, because non-payers would free-ride off of those who pay, and since everyone would want to be a free-rider, nobody would pay. Thus, only government can produce such goods.

Tom G. Palmer: The public goods justification for the state is one of the most commonly misapplied of economic arguments. Whether goods are rivalrous in consumption or not is often not an inherent feature of the good, but a feature of the size of the consuming group: a swimming pool may be non-rivalrous for two people, but quite rivalrous for two hundred people. And costs of exclusion are applicable to all goods, public or private: if I want to keep you from eating my apples, I may have to take some action to protect them, such as building a fence. Many goods that are non-rivalrous in consumption, such as a professional football game (if you see it, it doesn’t mean that I can’t see it, too), are produced only because entrepreneurs invest in means to exclude non-payers.

Besides not being an inherent feature of the goods per se, the alleged publicness of many goods is a feature of the political decision to make the goods available on a nonexclusive and even non-priced basis. If the state produces “freeways,” it’s hard to see how private enterprise could produce “freeways,” that is, zero-priced transportation, that could compete. But notice that the “freeway” isn’t really free, since it’s financed through taxes (which have a particularly harsh form of exclusion from enjoyment, known as jail), and also that the lack of pricing is the primary reason for inefficient use patterns, such as traffic jams, which reflect a lack of any mechanism to allocate scarce resources (space in traffic) to their most highly valued uses. Indeed, the trend around the world has been toward pricing of roads, which deeply undercuts the public goods argument for state provision of roads.

Many goods that are allegedly impossible to provide on markets have been, or are at present, provided through market mechanisms — from lighthouses to education to policing to transportation, which suggests that the common invocation of alleged publicness is unjustified, or at least overstated.

A common form of the argument that certain goods are allegedly only producible through state action is that there are “externalities” that are not contracted for through the price mechanism. Thus, widespread education generates public benefits beyond the benefits to the persons who are educated, allegedly justifying state provision and financing through general tax revenues. But despite the benefits to others, which may be great or small, the benefits to the persons educated are so great for them that they induce sufficient investment in education. Public benefits don’t always generate the defection of free-riders. In fact, as a wealth of research is demonstrating today, when states monopolize education they often fail to produce it for the poorest of the poor, who nonetheless perceive the benefits to them of education and invest substantial percentages of their meager incomes to educate their children. Whatever externalities may be generated by their children’s education does not stop them from paying their own money to procure education for their children.

Finally, it should be remembered that virtually every argument alleging the impossibility of efficient production of public goods through the market applies at least equally strongly– and in many cases much more strongly –to the likelihood that the state will produce public goods. The existence and operation of a just and law-governed state is itself a public good, that is, the consumption of its benefits is non-rivalrous (at least among the citizenry) and it would be costly to exclude non-contributors to its maintenance (such as informed voters) from the enjoyment of its benefits. The incentives for politicians and voters to produce just and efficient government are not very impressive, certainly when placed next to the incentives that entrepreneurs and consumers have to procure public goods through cooperation in the marketplace. That does not mean that the state should never have any role in producing public goods, but it should make citizens less willing to cede to the state additional responsibilities forproviding goods and services. In fact, the more responsibilities are given to the state, the less likely it is to be able to produce those public goods, such as defense of the rights of its citizens from aggression, at which it might enjoy special advantages.

Myth: Markets only work when an infinite number of people with perfect information trade undifferentiated commodities

When thinking about the difference between government action and action taken by free people trading voluntarily in markets, we find that many myths abound. Tom G. Palmer has written an important paper that confronts these myths about markets. The fifth myth — Markets Only Work When an Infinite Number of People With Perfect Information Trade Undifferentiated Commodities — and Palmer’s refutation is below. The complete series of myths and responses is at Twenty Myths about Markets.

Palmer is editor of the recent book The Morality of Capitalism. He will be in Overland Park and Wichita in May speaking on the moral case for capitalism. For more information and to register for these events see The Morality of Capitalism.

Myth: Markets Only Work When an Infinite Number of People With Perfect Information Trade Undifferentiated Commodities

Myth: Market efficiency, in which output is maximized and profits are minimized, requires that no one is a price setter, that is, that no buyer or seller, by entering or exiting the market, will affect the price. In a perfectly competitive market, no individual buyer or seller can have any impact on prices. Products are all homogenous and information about products and prices is costless. But real markets are not perfectly competitive, which is why government is required to step in and correct things.

Tom G. Palmer: Abstract models of economic interaction can be useful, but when normatively loaded terms such as “perfect” are added to theoretical abstractions, a great deal of harm can be done. If a certain condition of the market is define as “perfect” competition, then anything else is “imperfect” and needs to be improved, presumably by some agency outside of the market. In fact, “perfect” competition is simply a mental model, from which we can deduce certain interesting facts, such as the role of profits in directing resources (when they’re higher than average, competitors will shift resources to increase supply, undercut prices, and reduce profits) and the role of uncertainty in determining the demand to hold cash (since if information were costless, everyone would invest all their money and arrange it to be cashed out just at the moment that they needed to make investments, from which we can conclude that the existence of cash is a feature of a lack of information). “Perfect” competition is no guide to how to improve markets; it’s a poorly chosen term for a mental model of market processes that abstracts from real world conditions of competition.

For the state to be the agency that would move markets to such “perfection,” we would expect that it, too, would be the product of “perfect” democratic policies, in which infinite numbers of voters and candidates have no individual impact on policies, all policies are homogenous, and information about the costs and benefits of policies is costless. That is manifestly never the case.

The scientific method of choosing among policy options requires that choices be made from among actually available options. Both political choice and market choice are “imperfect” in all the ways specified above, so choice should be made on the basis of a comparison of real — not “perfect”– market processes and political processes. Real markets generate a plethora of ways of providing information and generating mutually beneficial cooperation among market participants. Markets provide the framework for people to discover information, including forms of cooperation.

Advertising, credit bureaus, reputation, commodity exchanges, stock exchanges, certification boards, and many other institutions arise within markets to serve the goal of facilitating mutually beneficial cooperation. Rather than discarding markets because they aren’t perfect, we should look for more ways to use the market to improve the imperfect state of human welfare.

Finally, competition is better understood, not as a state of the market, but as a process of rivalrous behavior. When entrepreneurs are free to enter the market to compete with others and customers are free to choose from among producers, the rivalry among producers for the custom of customers leads to behavior favorable to those customers.

Myth: Markets depend on perfect information, requiring government regulation to make information available

When thinking about the difference between government action and action taken by free people trading freely in markets, we find that many myths abound. Tom G. Palmer has written an important paper that confronts these myths about markets. The fourth myth — Markets Depend on Perfect Information, Requiring Government Regulation to Make Information Available — and Palmer’s refutation is below. The complete series of myths and responses is at Twenty Myths about Markets.

Palmer is editor of the recent book The Morality of Capitalism. He will be in Overland Park and Wichita in May speaking on the moral case for capitalism. For more information and to register for these events see The Morality of Capitalism.

Myth: Markets Depend on Perfect Information, Requiring Government Regulation to Make Information Available

Myth: For markets to be efficient, all market participants have to be fully informed of the costs of their actions. If some have more information than others, such asymmetries will lead to inefficient and unjust outcomes. Government has to intervene to provide the information that markets lack and to create outcomes that are both efficient and just.

Tom G. Palmer: Information, like every other thing we want, is always costly, that is, we have to give something up to get more of it. Information is itself a product that is exchanged on markets; for examples, we buy books that contain information because we value the information in the book more than we value what we give up for it. Markets do not require for their operation perfect information, any more than democracies do. The assumption that information is costly to market participants but costless to political participants is unrealistic in extremely destructive ways. Neither politicians nor voters have perfect information. Significantly, politicians and voters have less incentive to acquire the right amount of information than do market participants, because they aren’t spending their own money. For example, when spending money from the public purse, politicians don’t have the incentive to be as careful or to acquire as much information aspeople do when they are spending their own money.

A common argument for state intervention rests on the informational asymmetries between consumers and providers of specialized services. Doctors are almost always more knowledgeable about medical matters than are patients, for example; that’s why we go to doctors, rather than just curing ourselves. Because of that, it is alleged that consumers have no way of knowing which doctors are more competent, or whether they are getting the right treatment, or whether they are paying too much. Licensing by the state may then be proposed as the answer; by issuing a license, it is sometimes said, people are assured that the doctor will be qualified, competent, and upright. The evidence from studies of licensure, of medicine and of other professions, however, shows quite the opposite. Whereas markets tend to generate gradations of certification, licensing is binary; you are licensed, or you are not. Moreover, it’s common in licensed professions that the license is revoked if the licensed professional engages in “unprofessional conduct,” which is usually defined as including advertising! But advertising is one of the means that markets have evolved to provide information– about the availability of products and services, about relative qualities, and about prices. Licensure is not the solution to cases of informational asymmetry; it is the cause.

Myth: Reliance on markets leads to monopoly

When thinking about the difference between government action and action taken by free people trading freely in markets, many myths abound. Tom G. Palmer has written an important paper that confronts these myths about markets. The third myth — Reliance on Markets Leads to Monopoly — and Palmer’s refutation is below. The complete series of myths and responses is at Twenty Myths about Markets.

Palmer is editor of the recent book The Morality of Capitalism. He will be in Overland Park and Wichita in May speaking on the moral case for capitalism. For more information and to register for these events see The Morality of Capitalism.

Myth: Reliance on markets leads to monopoly

Myth: Without government intervention, reliance on free markets would lead to a few big firms selling everything. Markets naturally create monopolies, as marginal producers are squeezed out by firms that seek nothing but their own profits, whereas governments are motivated to seek the public interest and will act to restrain monopolies.

Tom G. Palmer: Governments can — and all too often do — give monopolies to favored individuals or groups; that is, they prohibit others from entering the market and competing for the custom of customers. That’s what a monopoly means. The monopoly may be granted to a government agency itself (as in the monopolized postal services in many countries) or it may be granted to a favored firm, family, or person.

Do free markets promote monopolization? There’s little or no good reason to think so and many reasons to think not. Free markets rest on the freedom of persons to enter the market, to exit the market, and to buy from or sell to whomever they please. If firms in markets with freedom of entry make above average profits, those profits attract rivals to compete those profits away. Some of the literature of economics offers descriptions of hypothetical situations in which certain market conditions could lead to persistent “rents,” that is, income in excess of opportunity cost, defined as what the resources could earn in other uses. But concrete examples are extremely hard to find, other than relatively uninteresting cases such as ownership of unique resources (for example, a painting by Rembrandt). In contrast, the historical record is simply full of examples of governments granting special privileges to their supporters.

Freedom to enter the market and freedom to choose from whom to buy promote consumer interests by eroding those temporary rents that the first to offer a good or service may enjoy. In contrast, endowing governments with power to determine who may or may not provide goods and services creates the monopolies — the actual, historically observed monopolies — that are harmful to consumers and that restrain the productive forces of mankind on which human betterment rests. If markets routinely led to monopolies, we would not expect to see so many people going to government to grant them monopolies at the expense of their less powerful competitors and customers. They could get their monopolies through the market, instead.

It’s always worth remembering that government itself seeks to exercise a monopoly; it’s a classic defining characteristic of a government that it exercises a monopoly on the exercise of force in a given geographic area. Why should we expect such a monopoly to be more friendly to competition than the market itself, which is defined by the freedom to compete?