Do Libertarians Assume Too Much Individual Competence?

            One criticism of libertarianism is that it assumes too much individual competence among people. The critic argues something like this: ‘Libertarianism is fine if we assume everyone knows what their individual interests are and how best to achieve them. But the fact is that most people are too ignorant to know either of these things, hence they need the strong, guiding hand of a paternalistic government’.

            

           First off, libertarians do not assume that individuals are omniscient or anywhere close to omniscient. They would definitely not agree with the critical statement made above though. So what do libertarians actually think on the subject of individual competence and its implications for political theory? I will talk about three main libertarian stances on the subject in this post. I am speaking as the utilitarian libertarian that I am of course. Natural rights libertarians would undoubtedly modify the discussion somewhat.

1. Individuals can be reasonably expected to know their own desired subjective ends better than anyone else:

            
           A key tenet of free-market economic theory is that all value is subjective, emanating from the subjective evaluation of goods and services by individual actors. Given this, it seems eminently reasonable to state that the individuals themselves will best know the contents of their own subjective evaluations of goods and services, and hence will know best which ends they wish to pursue with their resources, effort, and time. I hope I will not elicit any disagreement when I state that the individuals themselves will best know whether they enjoy eating chocolate ice cream, or vanilla ice cream, more, or, whether they derive more enjoyment and satisfaction from working as an architect, or from working as a computer programmer, once they have had experience with both. Social scientists, government bureaucrats, or even close family members, cannot know these things as well as the individuals themselves do. Coercive interventions to prevent individuals from pursuing their freely-chosen ends will frustrate individuals and make them less well-off.

2. Individuals can certainly err in their choice of means to achieve their ends, but private experts will be more effective at helping them than a coercive government will:

            
           Individuals are not omniscient, and hence may err in their choice of the means they seek to use to achieve their desired ends. Primitive farmers who prayed to the agricultural gods in the hopes of increasing the fertility of their fields chose inappropriate means to achieve their subjectively determined end of increasing the yield of their fields. Someone with knowledge of fertilization techniques, an expert, could help the primitive farmer to adopt more appropriate means to achieve his end.

            

            Both libertarians and statists recognize these facts: the difference is that statists use this as an excuse for government coercion in the name of ‘protecting the consumers’, while libertarians argue that private experts offering their services on the free-market will be more effective and not result in the negative effects associated with coercion. Essentially, the issue is this: individuals often need specialized information in order to adopt appropriate means to achieve their respective ends. Thus, the need for an information industry is created. As with every industry, the issue is: should it be run according to free-market principles or run by the government?

            

           The libertarian arguments against socializing the information industry run parallel to the libertarian arguments against socializing any industry. They are:

a. The separation of payment from service in government operations impairs the process of economic calculation. In this case, it impairs the ability to compare the cost of gathering and disseminating more information versus the benefits of that information. More funds devoted to information gathering can result in more information gathered and disseminated, but where to stop? In the private sector, the answer is clear: when it is no longer profitable to provide more information for more marginal uses.

b. The funds necessary to fund government information gathering and regulation based on this information must be levied through taxation, a process which progressively undermines incentives to produce and incentives to accumulate and maintain capital. On the free-market, on the other hand, the ability to purchase information from private experts with earned money serves as an incentive to amass more money by serving the consumers effectively.

c. Government has the ability to legally monopolize the industry if it so chooses. Competition in information provision serves as a spur for experts to increase their knowledge, their reputation, and their customer base. This force is absent in government information operations. Also, the government often makes its ‘expert’ seal of approval the legal requisite for providing a good or a service at all, thus artificially restricting the supply of the good or service in the name of protecting ‘quality’. Some people do not have the money to afford ‘quality’ though, and hence they are just priced out of the market entirely by the government’s restrictions. This would not be the case in a freely-competitive information industry, where a stamp of approval by an expert organization would be a very good thing for goods and service providers to have, but not a legal requisite. It would then be up to the individual consumer to decide if he is willing to pay only for products with an exacting expert stamp of approval, or take his chances with cheaper offerings with a less rigorous expert stamp of approval or with no stamp of approval at all.

d. By separating payment from service, and then providing the service for ‘free’ or at a subsidized price, information consumers’ needs for information are all artificially placed on the same plane. In a free-market, certain information consumers would be ready and willing to pay higher prices for crucial information, and then information experts would know what areas of information gathering to focus on particularly. Government information gatherers are not as keen to this signal, and hence may spend their time and the taxpayers’ resources gathering less essential information.

e. There is no good reason to assume, as many statists do, that government bureaucrats will be on average smarter and more caring than private information providers. In fact, on the free-market, an information expert’s monetary rewards will be directly related to his expertise and reputation for having expertise, which is not as directly the case for the government bureaucrat.

            

           Thus, to call for the government to use its expertise and information gathering skills to ‘protect the consumer (or the producer) from himself’ by providing free information and restricting private business based on this information is really just to call for the socialization and monopolization of the information industry by government. As usual, the libertarian has many good reasons for opposing the socialization of this industry, as with any other industry, recognizing the many advantages of the voluntary, free-market provision of information services by private experts and expert organizations.

Note: Sometimes private information providers are not paid directly by the information consumer, but indirectly by advertisers who want ‘eye-time’ with that information consumer or by goods and service providers who want their product to be evaluated by a private information provider or organization to make it more marketable. In either case though, maintaining a strong reputation for expertise and trying to provide the amount of information that people are willing to spend time and effort to obtain and use, not more and not less, are crucial for the private information provider to succeed monetarily.   

3. Dependence tends to lead to incompetence; independence tends to lead to competence; applying this to political systems:

            
           It is a fairly well-established psychological and pedagogical fact that if you treat someone like an incompetent who can’t do anything for himself, he will be more likely to become an incompetent who can’t do anything for himself. On the other hand, if you treat someone like a competent person who can do things for himself, he will be more likely to become a competent person who can do things for himself. A more independent person will tend to have more opportunity and drive to hone his skills and thinking abilities than a perpetually dependent person.

            

           While many recognize these truths, libertarians apply them in their analysis of political systems. Thus, imagine you have two political systems: one which treats its subjects as incompetents that must be taken care of as dependents, and one which treats its subjects as generally competent individuals who are more or less capable of making their own way through life independently. Skill, thinking abilities, and independence will tend to be fostered in the latter, while incompetence, passivity, and perpetual dependence will tend to be fostered in the former. The latter political system will be a better climate for fostering ingenuity and economic prosperity than the former political system because of these psychological forces. This is one important reason why libertarians support a political system characterized by freedom rather than one characterized by paternalistic statism.

            Thus, we have seen that libertarians do not assume that individuals are omniscient or anywhere near it, they just think that the fact that individuals are not is not a valid justification for paternalistic statism. This is because individuals are the best judge of the ends they personally want to pursue, because a free-market information industry will be more effective than a socialized and monopolistic information industry, and because treating people like dependents will tend to make them more dependent, while treating people like capable, independent individuals will tend to make them more capable and independent. Thus, pointing out that individuals are not universally competent in no way undermines any of the tenets of libertarian thought, contrary to popular belief.

        

            

The Toronto Transit Dilemma: A Case Study of Government versus Private Operations

            One of the most significant features of most government operations, as opposed to private business ventures, is that payment and service are separated. When dealing with a private business, you pay the asked price, and then you typically receive the promised service. It is different with most government operations. Here, payment for the ‘service’ is collected coercively through the process of taxation of the government’s subjects, and then the ‘service’ is seemingly delivered either for free or at a subsidized rate.

            

           This is the feature of government operations that make many egalitarians advocates of more government ‘services’. They seek to put some diluted form of the communist slogan: ‘From each according to his abilities, to each according to his needs’ into action by collecting payment through progressive taxation hitting the rich harder, and then providing ‘service’ indiscriminately to members of the ‘general public’.  We may approve or disapprove of this egalitarian aim, but in either case, there are certain consequences of separating payment from service through government operations that must be recognized regardless.

            

           In order to explore these consequences, I will use the current debates over the proposed expansion of the city of Toronto’s government-run transit system, under the aegis of the Toronto Transit Commission (TTC), as a case study. The situation is this: Toronto, compared to most other cities of its size, has a pretty minimalist subway system, with regular instances of overcrowding and many areas of the city totally inaccessible by subway. Most Torontonians and Toronto municipal politicians agree that Toronto’s transit system should probably be expanded in some way; the question is, in what way and how to pay for it? Some want more subways; some Light-Rail Transit. Some want more service in the suburbs and other underserved areas; others want more service in the downtown core to relieve the overcrowding. Some think taxes should be raised to pay for it; others think that spending cuts in other areas should be enough to pay for it. The province of Ontario’s government wants the city of Toronto’s government to bear most of the brunt of the financing; the city of Toronto’s government wants the province of Ontario’s government to bear most of the brunt of the financing. In short, we have a classic political squabble, with little decisive action on the issue foreseen in the near future.

                   

           Why, some might ask, all the political squabbling? Can’t we just consult ‘transit experts’ on the best place to build the new lines and the best vehicles to use, and consult ‘economic experts’ on what the best way of financing it would be? The problem is that there is no objective ‘best’ of any of these things for some abstract ‘general public’, separated from the geographical positions and subjective value judgements of individual Torontonians. Building a proper subway to the suburb of Scarborough would be great for people and businesses situated there, but would be little consolation to central Toronto residents forced to pay more taxes to support this expansion. Similarly, building more lines to relieve the congestion of central Toronto would be great for people living and working there, but would annoy most suburb dwellers forced to pay more taxes in order to ‘pamper’ their downtown counterparts. Building Light Rail Systems would be cheaper, but would be a less high quality transit experience than subways and would result in more road congestion for personal vehicle drivers. Neither is objectively better.

            

           How about financing, should taxes be raised or not? The answer will depend on both your general political ideology and on the proportion of the general tax burden that you are forced to bear. Yes, if the government collected more revenue they could probably provide more service (at the expense of private sector services that had been paid for with money that had not been taxed away previously), but there must be a point when enough is enough. When the government coercively monopolizes important sectors such as transit, education, and health care, the question is a difficult one to answer.

            

           There is, however, a solution to these seemingly insurmountable problems, a solution that no one in the mainstream media ever talks about. The solution is the privatization of Toronto’s transit system, with the reconnection of the currently severed link between payment and service that it would entail. Users of the TTC do currently pay a fare, but the fare is not enough to allow the TTC to break even with all of its monopolistic inefficiencies, let alone have money to expand, and the government subsidizes it, thus it is a subsidized rate, representing a partially severed link between payment and service. Privatization would mean the following: if an entrepreneur, probably backed by investors, predicted that he would be able to recoup the costs of building a new transit line, along with netting a decent profit, through charging the free-market rate for fares, the line would get built. Rather than the section of the city with the most political clout getting the transit line, the line would go to the section of the city whose residents or visitors are predicted to actually be willing to pay enough to make the line profitable. The people willing to pay for it would receive the service that they paid for, that is the way of the free-market.

            

           Moreover, privatization would introduce competition into Toronto’s transit industry. Rather than the monopolistic, subsidized TTC calling all the shots, anyone with brains, money, and experience could enter the transit industry and compete. Even if multiple subway lines along the exact same street wouldn’t at the moment be feasible, surface vehicles could compete with subways from different companies on the same street, and if the demand warranted it, subway lines built by competing companies could be built close enough together and going along similar enough routes to make them real competitors. The result would be both price competition and quality/service competition, something that would be a welcome change from the surly TTC employees, constant delays, and ever-rising (even though subsidized heavily) fares.  

            

           There are bound to be a few common objections to this privatization proposal, so we will take the time to anticipate and answer them here. The first would be a worry about a private monopoly springing up. The critic would argue that due to the nature of the transit industry, real competition is impossible, and thus privatization would just mean a substitution of a government monopoly for a private monopoly, hardly a worthwhile goal. In response, yes it is true that currently, it is probably technically infeasible for two subway lines to compete on the very same street. It is also true that it is technically impossible for a Wal-Mart and a Target to be in the exact same location, and it is commercially unlikely that these two stores would exist in the same mall or plaza due to excessive catering to a limited demand. Does that mean that these companies are monopolists? No it doesn’t, businesses don’t have to have the exact same features, in this case location, in order to vigorously compete with one another.

As we saw above, private subway line owners would be faced with the potential competition of different owners’ surface vehicles on the same street, as well as possibly from competitors’ subway lines nearby. For instance, a private owner of the Yonge Street subway line may be the ‘monopolist of subways on Yonge Street’, but if the demand warranted it, a competitor could build a subway line nearby, say on Jarvis/Mount Pleasant, to effectively compete with the Yonge Street owner. If the demand to justify another subway line wasn’t there, it quickly would be if the Yonge Street subway owner started running his line inefficiently or unreasonably (the main outcome people worry about from private monopolies), which would create space for competitors to enter on nearby streets.

In addition, besides having to compete with other subway lines that might pop up and surface vehicles, the privatization of the transit industry would make private subway line operators more responsive to existing forms of transit competition than the TTC currently is. The TTC is faced with the competition of personal vehicles and taxi cabs. However, the TTC is kept afloat by government subsidies. If they lose some business to personal vehicles and taxi cabs, the TTC is not going to go bust; most likely it’ll just receive more government subsidies. These subsidies would not be available to private subway operators, which would mean that they would have to take the competition from personal vehicles and taxi cabs far more seriously than the TTC currently does. Thus, worries about an inefficient private transit monopoly are unfounded; privatization would feature far more competition in the transit industry than the current system of a government-subsidized monopoly.

Another objection would probably have to do with positive externalities (see my post on externalities here: http://thinkingabouthumansociety.blogspot.ca/2013/03/economic-externalities-raison-detre-for.html). Critics would point out that the building of a subway line servicing a neighbourhood would result in external, unpaid-for benefits to the residents and business owners of that neighbourhood, in the form of more accessibility to the neighbourhood and a corresponding rise in property values. The problem with this is that because subway entrepreneurs are not remunerated for providing these external benefits, they will not factor it in to their calculations, and hence will be less likely to build a subway line, even if the benefits outweigh the costs if the external benefits are taken into account.

In response, given the possible external benefits, there are two options: either the subway line is built or it is not built. If it is built on the strength of the anticipated consumer demand for the transit services alone, than the external benefits just shower on the residents of the affected neighbourhood and no one is made worse off. Who can complain about that? If it is not built based on the strength of the anticipated consumer demand for the transit services alone, then there are two possibilities: either it would have been built had there been a way of ‘internalizing the positive externalities’, or it would not have been built even if there was a way of ‘internalizing the positive externalities’, because the benefits simply did not outweigh the costs. The problem is that we have no way of knowing which possibility applies to each particular case. Positive externalities, precisely because they are externalities, are immeasurable. Flawed surveys asking, without actually demanding the payment, how much people ‘would have’ paid to have a subway line in their neighbourhood is not a scientific way of ‘measuring externalities’ for the simple reason that people tend to be more generous in words than they are when it comes time to actually open their wallets. Because externalities are immeasurable, it is unscientific for an observer to say that this subway line ‘should have been built if it had not been for the selfish profit motive’: they simply have no way of knowing if the externalities were significant enough to justify the cost.

Besides this problem with the positive externalities argument, another problem is that it assumes that people are too inert and apathetic to actually organize and try to ensure that the beneficial, positive externality-showering subway line comes their way. In reality, people can and often do organize to internalize some of the potential positive externalities in order to ensure that the project is undertaken. For instance, a private subway entrepreneur could be faced with the choice of whether to build a subway line on Eglinton Avenue or on St Clair Avenue, or to not build a new subway line at all and invest in another, more profitable, project. Let us assume that on the strength of anticipated consumer demand for subway transit alone on either of these streets, building either line is anticipated to be not as profitable as other uses for the same amount of investment money. There are potentially un-internalized positive externalities for the property values of people on and around these streets though, what can be done? Well, an Association for Encouraging the Eglinton Subway, for instance, could be organized by residents and business owners near Eglinton. It could be organized on the foundation of a contingent contract, where subscribers promise to give a certain amount of money to the cause, provided that, say, 50% of business owners and residents in the designated area do the same. The money could then be offered to the subway entrepreneur as an incentive to build his line there, thus effectively internalizing some of the positive externalities. The same could be done by St Clair residents, and presumably whichever neighbourhood managed to raise more money, assuming it was enough, would get the cherished subway line. This process would be even easier if neighbourhoods, as many probably would be in a more libertarian society, were organized on a town house/condominium-type basis, in which case residents’ associations or ‘neighbourhood entrepreneurs’ would already be in place to gather money from residents to improve the infrastructure, including subway encouragement, of the neighbourhood.

Thus, as usual, the positive externalities argument against privatization does not hold up because it mistakenly believes that externalities are accurately measurable, mistakenly assumes that people are inert in the face of potential positive externalities rather than voluntarily organizing to reap them, and overestimates the ability of coercive governments to deal with the problem satisfactorily.

Finally, as the night follows the day, the egalitarians are bound to oppose transit privatization with their signature argument. They would argue that transit should be something that people should have more or less equal access to, and that being rich should not determine how well your transit needs are met. It is for this reason that egalitarians favor the government method of separating payment from service, and oppose privatization with its indissoluble link between payment and service. For my evaluation of egalitarianism in general, see section 2 of the following post: http://thinkingabouthumansociety.blogspot.ca/2013/04/dissecting-leftist-statism.html

Here, suffice it to say that while there is nothing objectively wrong with valuing a more egalitarian societal distribution of wealth as a good in its own right, there is something objectively wrong with ignoring the effects of implementing egalitarian policies. Most importantly, it must be recognized that egalitarian policies have a weakening effect on incentives to make money by producing for the world’s consumers. In the case of transit, the egalitarians are really saying (though most would never put it this way) that better ability to serve the consumers, as measured by someone’s disposable wealth/income in a free-market order, should not result in access to a better subway line than poorer people. Transit privatization, according to the egalitarian argument, is ‘unfair’ because the fares necessary to actually make the business profitable might result in pricing poor people out of the subway market. Now, we do not actually know whether fares under a private subway system would be higher than under the auspices of a subsidized, but also cost heavy and inefficiently run, government monopolist. Most likely they would be at first, but would gradually get lower (forgetting about monetary inflation for now) as the private lines got a chance to innovate and improve their processes, spurred on by competition and the profit motive. Even if they were perpetually higher though, all that means is that people actually have to pay for the services that they are using and that people who have had more success serving the consumers in other fields have more purchasing power to purchase more and better transit services with. This is how the incentive structure of the market works and even an intense love of egalitarianism cannot conjure away the effects of interfering with it.

Thus, my proposed solution to the Toronto transit political dilemma is one that is rarely ever talked about: to take transit out of the hands of politics entirely, and return it to the market where it can thrive. The monopoly, positive externalities, and egalitarian objections to this proposal do not really hold up, and should certainly not be held up as grounds for dismissing the proposal entirely without a proper discussion of its merits.           

                    

         

           

               

The Meaning of Libertarian Individualism

            One commonly employed cheap shot often directed at libertarians that supposedly goes a long way towards instantly refuting all of libertarian thought is to claim that libertarianism rests on the assumption that individuals are like isolated atoms, just pursuing their own interests, not influencing or being influenced by anyone else and not participating in social organizations. One gets the sense that people who make such claims have never actually read anything by a libertarian thinker or free-market economist. If they had, they would realize that the vast societal system of exchanges and market prices, as well as the division of labor which they enable and coordinate, are eminently social phenomena that are central to libertarian thought and free-market economics.

            

           Given this popular confusion over what libertarian individualism means, in this post I will discuss three important manifestations of libertarian individualism and show why they in no way assume or imply anything about ‘isolated atomic individuals’.

1. Methodological Individualism:

            Methodological individualism is a key tenet of libertarian thought. It is by no means unique to libertarianism; many other schools of thought adhere to it as well. Methodological individualism consists of a belief in the simple statement that it is only individuals who are capable of thinking, feeling, and acting, only they can have desires and only they can attempt to find and employ suitable means to attain those desires. Individuals can join together and interact with other individuals for certain purposes, forming a society, but this society or any of its subsets (such as nation, race, class, or family) is not capable of having desires of its own or choosing means to pursue them. It is simply not the case that society or one of its subsets has certain desires, and then splits itself off into hive-minded individuals whose purposes are to attain those desires for ‘society’.

            

           It should be clear that methodological individualism in no sense implies a belief in ‘atomic individuals’. It recognizes that individuals can sometimes, individually, decide to put the perceived interests of a collective (such as their family or country) above their own narrowly-defined individual interests. But it is always the individuals who are deciding that advancing the perceived interests of a collective is their desire, and it is always the individuals who are deciding upon and employing means to advance this desire. A collective is incapable of doing these things, because at the end of the day it is just a conglomeration of individuals. The clearest proof of this is the phenomena of immigration, where a person decides or is forced by circumstances to leave one national collective and join another one. How can collectives, who cannot think, feel, decide, or act, possibly be a good basic unit of social analysis when individuals have the power to leave them whenever they so choose?

2. Not much emphasis on any satisfaction that could be derived from contemplating abstract characteristics of collectives:

            This aspect of libertarian individualism is not methodological, but partly normative and partly based on psychological estimation. Most libertarians do not think that much personal satisfaction can be derived from contemplating abstract characteristics of collectives, separated from any individual goods which these characteristics might be associated with. For example, most libertarians would not agree with the statement: ‘I know that our country has enough military capacity to defend itself against threats, but I derive great satisfaction from knowing that my country is really strong militarily, hence I think that more taxation in order to provide more tanks, fighter planes, and atomic bombs is justified’. Or with the statement: ‘I accept that socialized health care will result in a general decline in living standards due to the extra taxation, a decline in the quality and quantity of available medical care, and relative allocational chaos in its distribution, nevertheless, I derive great satisfaction from knowing that my country is a ‘caring’ one, hence I think that socialized health care should be implemented”.

            

           In these two statements, the individual is, unrealistically, admitting that his proposed political measures are harmful to his and other people’s other interests, but that the satisfaction derived from contemplating an abstract collective characteristic such as a country being ‘strong’ or ‘caring’ trumps these negative effects. This statement construction allows us to isolate the abstract ‘collective good’ from considerations of general material prosperity for individuals.

Most libertarians would hold, normatively, that they do not derive satisfaction from contemplating such abstract collective characteristics and would estimate psychologically that most people don’t actually desire much satisfaction from such things either. Most people probably don’t derive that much satisfaction from contemplating abstract collective characteristics, but support policies that libertarians oppose because they disagree with the libertarian analysis of the effects of the policies. Thus, most supporters of beefing up the military probably think that more defense is actually needed or that military spending by government will boost the economy in some way, and underestimate the damage caused by taxation, inflation, and budget deficits. Similarly, most supporters of socialized health care probably think that it is a more effective way of distributing health care to citizens of a country than free-market health care, and also underestimate the damage caused by taxation, inflation, and budget deficits.

This aspect of libertarian individualism is partly normative because it is certainly possible for people to gain great personal satisfaction from contemplating abstract perceived characteristics of the collectives they belong to, and to support political measures based on that subjective evaluation. Most libertarians would not derive any satisfaction from such things though, and estimate that the vast majority of people would not either, and hence do not really factor it into their policy analyses. Whether you agree with this assessment or not, holding this opinion in no way constitutes an assumption of ‘atomic individualism’.

3. Opposition to coercive collectives:

            Another charge commonly levied against libertarians, related to the charge of ‘atomic individualism’, is that libertarians fail to realize that certain big projects or achievements can only be accomplished by ‘a nation’ (a political collective whose governing body has coercive powers considered legitimate), not by individuals. It is said that only ‘a nation’ could have built the Hoover Dam, could have sent a man to the moon, could have invented and developed the atomic bomb, etc… An observer unacquainted with the facts, armed with this theory, could just have easily maintained that only ‘a nation’ could develop the retailing juggernaut with giant superstores and distribution centres located throughout the world that is the contemporary Wal-Mart. However, he would be mistaken, for in fact Wal-Mart was built by individuals voluntarily joining together to pursue a common purpose.

            

            Thus, it is not big projects that only ‘a nation’ can tackle; it’s hard to get bigger than Wal-Mart. However, the theory of public goods and economic externalities does provide a rationale for why certain beneficial projects may not be undertaken through voluntary cooperation. I discuss this theory, and what it does and does not imply, in this post: http://thinkingabouthumansociety.blogspot.ca/2013/03/economic-externalities-raison-detre-for.html   

           

           For now, suffice it to note that it is conceivable that certain beneficial projects might not be undertaken through voluntary individual cooperation because a lot of their benefits take the form of positive externalities, benefits that accrue to other people not involved in the project for which the people involved in the project are not remunerated monetarily for. Most economic goods involve some positive externalities, but it is theoretically conceivable that economic goods which involve a significant amount of positive externalities will either not be produced or not produced in ‘optimal quantities’ through voluntary interaction. The main problem with the theory is that it is impossible to measure the existence or extent of positive externalities in an even marginally reliable fashion, and that the common proposed solution, provision of the good through government coercion, involves a host of other problems and may not even solve the externalities problem in the first place.

            

           The libertarian response to the issue is generally to try and find innovative free-market solutions to ‘internalize the externalities’ and point out historical occasions where so-called ‘public goods’ exhibiting potentially significant positive externalities have been provided voluntarily. Railroads (James Hill’s Great Northern Railway: http://en.wikipedia.org/wiki/Great_Northern_Railway_(U.S.)), roads (turnpikes in early American history: http://www.uctc.net/research/papers/018.pdf), and municipal infrastructure (St Louis Private Places: http://en.wikipedia.org/wiki/Private_place), all classic examples of goods with potentially significant positive externalities, have in the past been provided effectively through voluntary individual associations.

            

            Through these examples, we see that what libertarians oppose is not individuals joining together for some kind of collective action per se. Rather, libertarians tend to oppose collectives that are established and maintained coercively, rather than through voluntary agreement (unless you are a minarchist libertarian such as myself, in which case it is permissible for the basic political society providing law and order and defense against aggression to be maintained through coercion). Even if the purpose of the coercively established and maintained collective is to ‘solve an externalities problem’, this does not reduce the general negative effects of coercive actions, and thus libertarians try to find ways to solve any externalities problems through voluntary, free-market arrangements.

            

              Recognizing the serious negative effects of extensive social arrangements based on coercion and not accepting the positive externalities argument as a trump card justification for coercive arrangements characterizes this aspect of libertarian individualism. It by no means implies a rejection of the beneficial nature of (voluntary) collective action nor a belief in ‘atomic individualism’.                       

Will Human Labor Become Superfluous?

            According to free-market economists (and I agree), most of the blame for any long-term unemployment that might exist is assigned to government. Minimum wage laws and the tolerance of the coercive activities of labour unions intended to push their wages above the market wage creates institutional wage rate rigidities which prevents the labour market from clearing based on supply and demand, thus causing unemployment. In addition, through their inflationary credit expansion schemes, governments sent in motion the boom-bust cycle, which entails a sudden, large-scale adjustment of productive activities in the bust period, which leads to unemployment until the adjustments have been made.

            

           Many people do not agree with this analysis, and instead look for deeper, more fundamental causes of unemployment in the modern world. One such alleged cause is technology, which supposedly makes many jobs obsolete and supposedly makes a number of people’s labor superfluous in the economic system, leading to permanent unemployment for these people. The goal of this post is to argue that human labor is not, and probably never will be, superfluous, and that permanent unemployment is not an effect of the increased productivity of labor that technology allows.

            

           To make this point, we must consider two questions: 1. Will the potential for mankind to produce more material goods likely ever run out? 2. Even if it does not, is it possible that only highly skilled labour would be necessary in a high technology production structure, thus rendering low skilled labour superfluous?

            

           In order to answer the first question, we must examine what it takes to produce economic goods. Essentially, land/natural resources, human labor, capital, and scientific/technological knowledge are all necessary to produce the vast majority of economic goods. Capital can be further reduced to land, labor, and time. For example, in order to produce refined steel (a capital good), you need, among other things, iron mines (land), coal mines (land), all the relevant human labor (miners, ironworkers, truckers, etc…), and production time to bring all the components together into the final product. The production time available is actually a scarce factor of production along with land and labor, if it takes too long for a production process to produce a consumer’s good, it may not be worth it based on market participants' subjective value judgements. Available production time can be augmented by market participants adopting a more future-oriented view, through abstaining from consuming all the resources available and instead saving and investing them in longer, usually more productive, production processes. Available production time, and thus capital, is and always will be scarce, but it can be made less scarce through less consumption and more saving. Abolishing anti-saving/capital accumulation government policies such as inflation, budget deficits, the progressive income tax, the capital gains tax, the inheritance tax, the corporate tax, and social security as it is currently constituted in the US, would encourage more saving and capital accumulation and make this factor of production less scarce.

            

           Abstract capital, a combination of land, labor, and time, must be embodied in concrete capital goods that will then increase the productivity of land, labor, and time, making it easier to produce more consumer’s goods and more capital goods. The more advanced mankind’s scientific/technological knowledge, the more efficient use can be made of capital by embodying it in more efficient, technologically-advanced capital goods, which in turn will tend to make land and labor more productive. Usually though, it is the scarcity of capital/available production time that sets a narrower limit on production than the state of technological knowledge. The fact that the most advanced capital goods and techniques are not used anywhere close to everywhere in the world confirms that it is the relative scarcity of capital/available production time that is preventing the worldwide use of the most advanced capital goods and processes. That being said, significant advances in scientific/technological knowledge could make the existing capital stock, land, and labor more productive, apart from any increases in capital itself. With a reformed patent system, along with private subsidies and perhaps a limited amount of government subsidies to research, advances in technological/scientific knowledge should continue at a sufficient pace.

            

            How about land/natural resources, could we be up against a scarcity of them? In terms of pure real estate, the answer is a clear no; a vast area of the earth’s surface still consists of nearly untouched land. How about natural resources and energy though, could be run out of them? Contrary to what the conservationists say, it is extremely unlikely, for reasons George Reisman points out in the chapter on environmentalism in his economic treatise, Capitalism. New ways to harness the vast amounts of energy on earth are constantly being developed (geothermal energy, advances in nuclear technology, etc…) and existing ways are being made more accessible (fossil fuels extracted from shale and tar sands, more natural gas deposits being brought into production). In terms of minerals, there are still lots of mines similar to the ones already being exploited that have been left untouched as of yet, and with advances in mining and digging techniques, we could gain access to the vast amounts of minerals that stand between us and the centre of the earth, a surface we have barely even scratched yet. In terms of agriculture, advanced chemical fertilization and irrigation techniques can be used to make previously infertile areas such as deserts highly fertile, while advances in indoor growing technology and bioengineering could even allow agriculture to be performed in less traditional locations such as in urban high-rises.

           

           In all these cases, the problem is not a lack of availability of land/natural resources, but a lack of accessibility. Capital goods and technology, used to make the land and the labor working on it more productive, would make these vast reserves of land/natural resources accessible to mankind.

            

            If total available land/natural resources are not scarce, capital goods are scarce but more of them can be obtained by combining land, labor, and time and making them more productive, and the state of scientific/technological knowledge is not a very important limiting factor of production, then where does that leave labor? Clearly, it means that human labor in general will likely always be scarce, and will likely never be superfluous. If mankind wants to produce more, there is essentially nothing besides their lack of ambition stopping them. To produce more, given the state of technological knowledge, requires more labor, and this increased production will serve to maintain the laborer and enhance the living standards of everyone in society. Human labor will thus always have something to do if more production is wanted.

            

           Having answered the first question, we must now move on to the second. We have established that mankind’s productive potential is nowhere near, and probably never will be, exhausted, and hence labor in general will be scarce and not superfluous. We must remember though that in order to be integrated into a given structure of production and sufficiently remunerated, the labor performed must be valuable to someone, given the competition of other laborers. Is it thus possible that a more highly technologically advanced production structure, while being vastly more productive, will render the labor of certain groups of laborers permanently superfluous? Specifically, would it be possible for technology to render unskilled labor superfluous?

            

           Let us consider an extreme hypothetical example. Imagine that, sometime in the future, due to significant advances in technological/scientific knowledge and a massive accumulation of capital goods, all of the manufacturing, resource extraction, and agricultural industries are fully mechanized (though I am not assuming Artificial Intelligence Robots in this hypothetical). What human labor would be necessary in these industries? Well, engineers and skilled mechanics would always be necessary to supervise/operate the machines and make sure they are working properly, and repairing them when they break. Lots of computer programmers to create and maintain the relevant software of these machines and of consumer devices would be necessary. Probably people to operate transportation vehicles would be necessary too. Besides this, the entire business apparatus would still be necessary, including accountants, managers, entrepreneurs, investors, marketing professionals, sales people, etc… In terms of highly skilled personal service providers, doctors and lawyers would remain in high demand, so would good hairdressers, interior designers, electricians, plumbers, etc… as would teachers/coaches of all sorts, academic as well as for recreational activities such as martial arts, sports, yoga, etc…

            

            Another thing to note is that with the increase in real income that this highly advanced and productive production structure would bring about, more of these well-paid, highly skilled laborers would probably choose to work less and use their high hourly incomes to enjoy more leisure time. This would mean that even for a given amount of production, more people’s skilled labor would be necessary.

           

            Thus, these skilled laborers who could fit into this highly productive production structure would be living well and would certainly not be superfluous, but how about those who simply do not have the brainpower/capability to learn such specialized skills, how about perpetually unskilled laborers? A hint as to what they would do is provided by the developed western world’s recent economic history: with manufacturing and agriculture either moving overseas or requiring less unskilled labor, more and more unskilled laborers have taken jobs in the service industries. As manufactured and agricultural goods become more abundant, people tend to want and have the means to pay for more personal services to be performed for them. If they had the material means, I am sure that lots of people would employ the services of babysitters, house cleaners, launderers, dog-walkers, personal chefs (could be highly skilled or unskilled laborers), gardeners, secretaries, etc… And indeed, in the highly productive hypothetical production structure we are considering, almost everyone integrated into the business, resource extraction, agricultural, or manufacturing sectors, or working as highly skilled personal service providers, would have the means to employ unskilled laborers to perform such personal services for them. They would have enough disposable resources at their command to make it worth their while, probably more than worth their while, for unskilled laborers to work for them. In addition, unskilled jobs such as greeters, waiters, bellboys/kitchen hands, fast-food workers, perhaps cashiers, would probably still exist. 

            

           Thus, even in a hypothetical, far-off from current reality production structure, and even making the slightly unrealistic assumption that unskilled laborers simply do not have the capabilities to become skilled laborers of any kind, there is still no reason for there to be permanent unemployment of unskilled laborers, let alone of skilled laborers.     

                       

            

How the Wealth of Others Also Serves Us

            In the mainstream media, much ado is often made of the fact that the world’s/a country’s wealth (the sum of the capitalized market values of all economic assets in the world/the country) is very unequally ‘distributed’ amongst the world’s/the country’s population. The first misleading statement featured in my previous post (http://thinkingabouthumansociety.blogspot.ca/2013/04/misleading-statement-hunter-round-1.html) is an example of this, and there are many others. Based on this fact of unequal wealth distribution, calls are often made for a redistribution of such wealth from richer to poorer members of society. What these redistributionists do not tend to realize is the fact that, in a market society characterized by a great degree of exchange and division of labour, most of the wealth owned by others is used to serve us, in our capacities as the world’s consumers.

            

           The failure to realize this is, I think, usually based on an incomplete understanding of the concept of private property. In a legal system where private property rights are respected, people, technically, indeed do have the right to do whatever they want with their private property, provided that they do not aggress against the person or property of others explicitly (through violence or trespass) or implicitly (through fraud). From this, the redistributionists usually proceed to claim or imply that owners of private property are just irresponsible autocrats when it comes to their property, and thus relieving particularly rich property owners of some of this power would have only beneficial consequences. When it comes to private ownership of wealth though, the deeper and more interesting questions to ask are: 1. what will happen to their wealth if its owners use it irresponsibly? 2. Given this, is it likely that owners of great wealth will use it irresponsibly?

            

           The answer to the first question is simple: in a free-market society, if people use their wealth irresponsibly, they will very soon lose this wealth. A contemporary illustration of this is provided by the economic fortunes of successful hip-hop artist M.C. Hammer. Especially with the release of his 1990 album which featured the very popular ‘U Can’t Touch This’, Hammer was making lots of money. However, rather than investing this money in ways that would serve the consumers and that would thus assure him a steady income in addition to the maintenance of his wealth, Hammer indulged in luxurious consumption. In 1996, Hammer had amassed a lot of debt and was forced to declare bankruptcy. In short, because Hammer used most of his money for his own personal consumption instead of investing it in businesses that would serve others, his wealth dissipated and he was forced to declare bankruptcy.

            

           The answer to the second question follows from the first: if, in a free-market society, wealthy people seek to remain wealthy, they must use their wealth responsibly by investing it skillfully in ways that will contribute to serving the consumers. In a free-market society, it will tend to be the relatively thrifty and business-savvy people that will be able to amass a great fortune in the first place. It is thus likely that, having worked so hard to amass it, these people won’t suddenly reverse their character traits and start squandering all their wealth through luxurious personal consumption, but will rather continue investing it in order to serve the consumers.

            

           The most common analogy used to describe the division of wealth in a society is the division of a pie into slices. Wealthy people have a much bigger slice of the economic pie than less wealthy people. Given what we have discussed above though, this analogy is misleading. A pie is a quintessential consumption good: it is a good that, once it satisfies the relevant human wants and needs that it was created for (the need for nourishment and the desire for something tasty), it is gone. The analogy implies that the sole difference between wealthy people and less wealthy people is that the wealthy people have access to more luxurious consumption goods, such as yachts, personal helicopters, mansions, lobster dinners, caviar, etc… while the less wealthy people do not. While very wealthy people do have access to these goods, and often make use of it, the vast majority by no means use all, or even a substantial fraction of, their wealth for their own personal consumption. This is because if they do, as M.C. Hammer did, they will very soon lose their status as wealthy individuals.

            

           What does it mean, in a free-market society, to have wealth invested profitably? In order for resources to be invested, they must first be saved. In order to be invested profitably, the resources must be used to produce inputs for other businesses and to sell these inputs to them, or used to produce consumer goods for the general consuming public and to sell these goods to them. In both cases, ultimately, the desires of consumers must be predicted and they must be met in a cost-effective and high quality manner, in order for the investment to be profitable in a free-market society. Factory owners do not typically use their wealth to buy factories for the purpose of quietly contemplating the machines, but in order to ultimately produce for the consumers and sell it to them at profitable prices, in the face of the competition of other factory owners seeking to do the same. The same applies to most forms of investment.

            

           What would be the economic consequences if the redistributionists had their way and a significant portion of the accumulated wealth of richer individuals was coercively transferred to poorer individuals? A lot of people with little to no business or investment experience would suddenly become responsible for the maintenance and profitable investment of the economic assets transferred to them. A lot of the responsibility for investing wealth would be transferred from the careful hands of individuals who have proven themselves to be thrifty, business-savvy, visionaries into the hands of individuals who have proven no such thing. In addition to a likely decline in average investment skill behind the funds invested, it is likely that many of the new owners of the redistributed wealth will seek to sell their assets and use the proceeds for consumption purposes. The result would be that the prices of producers/investment goods would fall relative to the prices of consumers good, which would then force businesses, if they sought to remain profitable, to adopt a shorter-term outlook and orient their productive activities more towards consumption in the present rather than towards investing so that production can be increased in the future. The result would be a slowing down of capital accumulation or even capital consumption, something which is in no one’s long-run interest as it means the economic system as a whole will be able to produce less. See tip #27 for a discussion of the importance of capital here: http://thinkingabouthumansociety.blogspot.ca/2013/03/how-to-think-about-human-society-tips.html

            

           Thus, next time that you are inclined to think that the current level of wealth inequality is appalling and that a redistribution of wealth would be a good idea, remember that most wealth does not consist of piles of foods sitting in the stashes of fat cats or of luxurious consumption goods. Rather, most consists of productive business assets, invested in order to best serve you, in your capacity as a member of the general consuming public to which all successful businessmen must ultimately cater, in a free-market society, if they wish to retain their status as wealthy individuals. The envy that you might feel because wealthy people are able to enjoy yachts, mansions, and caviar, is a small price to pay to incentivize these people (if they wish to maintain their luxurious lifestyles) to invest their wealth in a responsible, consumer-serving manner, which ultimately makes us all better off.