Must you be Grateful to the Government?

            One common criticism of libertarians is that they are ungrateful for everything that their government has done for them. Libertarians make use of government roads, government police provision, often government schools, in many countries government healthcare facilities, among other things, just like everybody else. Like everyone else, it is alleged, libertarians should be grateful to the government for these things, and not constantly criticize it and seek to shrink it. 

            

           According to most well-accepted codes of morality, showing gratitude when someone does you a favor or gives you something that you value is morally right, not showing such gratitude morally wrong. I have no problem with this tenet of morality, but in this post I will endeavour to show why the government does not deserve the gratitude of its citizens and why the charge of ingratitude is not a valid argument against libertarianism.

1. The government is a conduit; it does not create wealth on its own:

            The first thing to look into when deciding whether one should be grateful to someone for doing you a favor or not is whether that person was actually the one directly responsible for the favor. Imagine that you have run into some hard times and your child is sick and you need some money to pay for their medical bills. A wealthy man named John Smith, through his John Smith Children’s Charitable Foundation, decides to give you the money to pay for your child’s medical bills. John Smith, being a busy man, does not hand you the money himself, rather, his hired administrator does that. I ask: who deserves the bulk of your gratitude for helping you out in your time of need, John Smith or the hired administrator? I think most people would answer that John Smith, having provided the resources to be handed out by the administrator, is the one that deserves the bulk of their gratitude.

            

           The case of government is similar. The people forming the government, as a general rule, are not the ones struggling to produce valuable economic resources. Rather, they tax the citizens who produce valuable resources, and then use those taxpayer resources to finance government operations and distribute some of the resources to other citizens. Linking this to our hypothetical above, it would seem that government is more like the hired administrator, while the taxpayers who actually provide the resources to be ‘distributed’ are more like the generous John Smith. As such, the bulk of our gratitude for whatever government ‘services’ we might value should go the taxpayers whose conscripted resources make these services possible. Demanding that even more of their resources be conscripted through higher taxes, as most statists do, seems a peculiar way of showing gratitude for the favor provided.        

2. One need not be as grateful for an unsolicited service or for a service which you must pay for:

            As a general rule, people are expected to be more grateful for the favors that they asked to be bestowed on them than for favors that are unsolicited. Thus, if you ask someone to buy you a donut and they do, you should be more grateful to that person than to the person that just smuggles a donut into your knapsack unsolicited. Still though, I will grant that if the unsolicited favor is appreciated by the recipient, the recipient should still be grateful to the donor, although not as much as if the favor was solicited.

            

           Another thing that should lessen the obligation of gratitude is if payment is demanded in order for a solicited ‘favor’ to be bestowed. Thus, when you exchange a dollar for a cup of coffee, it is certainly polite to thank your server, even though you paid for the service, although the gratitude need not be as great as if the cup of coffee that you asked for was given to you for free.

What should wipe out the obligation of gratitude entirely though is if a ‘favor’ granted is not only unsolicited, but payment for the favor is demanded anyway! Thus, imagine that you plan to take the subway train down to work and there is a musician playing near the platform. Ordinarily, if you like the music, you might feel a touch of gratitude for the free, though unsolicited, favor bestowed, and you might even give the musician some money if you think his performance is worth it. But now imagine that the musician has hired thugs to insist that you pay a specified amount for the performance, upon threat of you being beaten up by the thugs if you do not. Even if you might appreciate the music being played under normal circumstances, this performer should certainly not be entitled to any of your gratitude. If you do not appreciate the music and wish it would stop, than being forced to pay for an injury bestowed on you by another adds insult to injury, and certainly the performer deserves no gratitude, just the opposite.

These latter two situations are the closest to governments’ mode of operations. Governments take your money as taxation, and then use some of that money to provide you with ‘services’. You may appreciate the services (‘free’ medical care, ‘free’ education, etc…) or you may not appreciate the services (aggressive military ventures if you are a peace lover or a pacifist). In either case, you need not be grateful for either unsolicited, but appreciated, services that you are forced to pay for, or especially for unsolicited, and not appreciated or actively disliked services that you are forced to pay for.

It does not matter in this regard if the government is democratic or authoritarian. Would the thuggish subway musician deserve your gratitude if he were elected every four years by regular subway customers in a poll by majority vote, with no chance of voting for having no coercive subway musician at all? I submit that he would not, and the same goes for governments.       

3. Government actions typically impose all kinds of unseen costs on the economy, injuries to everyone that often outweigh the apparent benefits of the ‘favor’:

            In order to determine whether we should be grateful for a favor bestowed or not, it would make sense to consider all of the benefits and costs of the favor to us, even those that are not as directly evident. For example, imagine that a rich and powerful man offers you the following: he will give you $100 000 if you give your moral consent to him installing handcuffs on half of the population (not including yourself) of your city. Now, for a selfish and short-sighted person, this might seem like a great deal. Someone who even somewhat cares about others would probably not accept the deal. If you were a long-sighted individual, even if you were completely selfish, you would also be advised not to accept the deal. The fact is, with half of the population of your city handcuffed, the productivity of these potential exchange partners and partners in regional economic development would be crippled. The result would be a significant lowering of your standard of living, especially your long-run standard of living, even with the $100 000 added.

            

           Though not as obvious, a similar analysis can be applied to government actions. I will not here get into detail about how government actions cripple productivity (for that, see section 1 of: http://thinkingabouthumansociety.blogspot.ca/2013/04/dissecting-leftist-statism.html and http://thinkingabouthumansociety.blogspot.ca/2013/03/issue-analysis-higher-taxes-on-wealthy.html).  

              

           For now, suffice it to say that any potential productivity crippling effects of government actions should be carefully considered before labelling anyone ungrateful for a governmental ‘favor’ bestowed. If it can be shown that the costs, including indirect costs, of an unsolicited ‘favor’ outweigh its benefits, than we must cease calling it a favor and start calling it an imposition, something which we certainly should not be grateful for.

4. In any case, past gratitude should not stand in the way of future reform:          

If we want to do our duty as truth-seeking social scientists and good society-seeking citizens in the present, we must not let past gratitude stand in the way of beneficial reforms. Take a computer scientist who learned his discipline in the 1950s and 1960s. Let’s say he did most of his programming and learning in those years on an IBM Type 650 computer. He might, like Donald Knuth, author of the famous computer science book the Art of Computer Programming, “affectionately” dedicate his book to the Type 650 computer he had worked on out of gratitude to the computer (http://en.wikipedia.org/wiki/The_Art_of_Computer_Programming). Nevertheless, this does not mean that he is somehow morally obligated to only use that computer to which he is grateful for the rest of his life. He can still recognise (and must recognise for the good of his career) when a new computer is an objective improvement over the Type 650 and use it for that reason, past feelings of gratitude notwithstanding.

            

           A similar analysis applies to government policies. Even if you were to ignore the three previous points I have made about why you need not be grateful to the government for its ‘favors’ and still insist on being grateful for past government actions, this does not mean that you have a moral duty to continue to advocate the same policy which benefited you in the past. Your feelings of gratitude for past government actions do not change anything about the likely societal effects of government policy in the present, the effects that must be analyzed in order to rationally decide whether a particular government policy is a good idea or not. Abdicating this duty in the name of past gratitude is not a morally commendable action, it is just intellectually lazy.

          

           Thus, we have pointed out three reasons why one need not be grateful for most governmental ‘favors’ bestowed, and shown that even if despite all this one still insists on being grateful for governmental ‘favors’ bestowed in the past, this should not decide your policy analysis in the present one way or the other. Given all this, the criticism of libertarians accusing them of being ungrateful for government actions is not a valid critique of libertarianism and does nothing to discredit the ideology.       

Government Budget Cuts Versus Privatization

            For most people, the term ‘libertarian’, if it signifies anything at all to them, is associated with ‘right-wing’ political groups, especially the current Republican Party in the United States. Often, right-wing politicians will try to get the government to cut its ‘social spending’ budget for things such as health and education, because they argue that the private sector is better at providing these services. From the point of view of genuine libertarians, so far so good. The problem with the right-wingers is that most are not consistent enough libertarians to realize that just cutting the government budget is not enough, measures must be taken in conjunction to deregulate or privatize the industry in question, or else the budget cuts may be harmful.

            

           Let us take an extreme hypothetical example to flesh out the point I am trying to make. Imagine a country where the government has completely socialized the food industry, from agricultural production, to processing, to wholesale, to retail. There are laws on the books preventing any private individual from involving themselves in food production or distribution, backed-up by strict punishments and a ruthless police force. Seeing this, some politicians in this country who have a ‘right-wing’ orientation argue as follows: ‘Food socialism is not the way; government has no business involving itself in the food industry. Therefore, we propose that the government’s food budget be slashed by a third’. The politicians pass this bill, declare a victory for liberty, and then satisfied with their work, go back to arguing about gay marriage and abortion.

            

           The problem with this ‘solution’ is clear: as the laws are currently set up in this country, there is no private option that could spring up to fill in the gap in food production capacity which will be left by the food budget cut. What happens in this: citizens will indeed bear less of the burden of taxes, inflation, and government budget deficits because of the budget cut, but some of the country’s food production capacity will be lost. Citizens have more money to spend on everything that the private sector is allowed to provide; but they lose in terms of the amount of food available. Depending on the circumstances, this could lead to mass starvation and death; the fact that citizens now have more money to spend on movies and cars is little consolation.

            

           We must always remember that governments do not just tax and spend; they also monopolize and ‘regulate’ industries. To move towards a free-market in a certain industry, cutting government spending in that industry is often not enough, the government’s restrictions and ‘regulations’ on that industry, or at least a significant amount of them, must also be lifted in conjunction if the reform is to be worth praising.

            

           Let us now apply these principles to some real-life examples. In Canada, the government has, for all intents and purposes, monopolized the most important parts of the healthcare industry. In many provinces, setting up private medical practices for many purposes is simply not allowed, especially for complicated medical procedures such as surgeries. In my opinion, this incredibly inefficient system is very undesirable and should be reformed based on free-market principles, the healthcare industry should be privatized. The way to do so, however, is not just to call for reduced government spending on healthcare. The result of this would just be an even worse system which citizens could not escape from, and which might actually cause the deaths of more Canadian citizens. Cuts in spending must be accompanied by a significant change in the laws governing the healthcare industry, namely, allowing private practices to be set up and to perform all medical procedures and not stifling these private practices with excessive regulations.

            

            The principle applies a bit differently in the US healthcare industry’s case. Here, private provision of medical services is allowed, but the industry has been crippled by a mass of harmful government regulations. Through restrictive licensing requirements for doctors and hospitals, the supply of most medical services has been artificially reduced. The industry, through government action, has been burdened with a very uneconomic practice: the practice of comprehensive health insurance as opposed to payment upon receipt of service being the dominant method of payment. Most people’s needs for most medical services cannot be classified as an insurable risk, a risk that must, as much as possible, be beyond the control of the service consumer and the service provider. In a free-market system, it would probably only make sense for medical insurance to cover the most truly unpredictable and serious diseases, with the rest paid for upon receipt of service.

Through its actions, the government has encouraged the comprehensive health insurance model. Income tax does not have to be paid on medical insurance granted to workers in lieu of cash payment of wages, and labour unions have often, through their coercive actions, forced employers to provide medical insurance to their workers, thus encouraging the prevalence of medical insurance. To make matters even worse, governments have set up tough licensing requirements for medical insurance providers, thus contributing to the cartelization of the industry and restriction of competition. Moreover, many governments have prohibited medical insurers from ‘discriminating’ against clients with certain known medical risk factors (something that any viable insurance business must do to keep its premiums lower for less risky clients), and many have forced insurers to cover certain medical procedures (treatments against alcoholism for instance) for all of its plans. These actions have made the price of medical insurance skyrocket, and the artificial dominance of the whole comprehensive medical insurance model lends itself to skyrocketing prices for all medical procedures covered due to an artificial stimulation of demand, thus making it very dangerous for people not to be insured.

            

           When Republicans, then, propose that government medical spending in the form of Medicare or Medicaid, or on public hospitals be reduced, without suggesting any reforms of the crippling government regulations on the private healthcare market, libertarians may be skeptical. While perhaps not as serious as in a fully monopolized system such as in Canada, where cuts in government medical spending simply result in less medical service available, no matter how urgently people need it, the results are not all that better in a healthcare system such as the United States has. Here, what citizens lose in government medical provision, they must look for in the ‘regulated’ private market that has been monstrously deformed and crippled by ill advised government interventionist policies. Any intelligent reform of the US medical industry along free-market lines must couple government spending cuts with repealing many of the harmful government interventionist policies in the private healthcare market.

            

           One of these two variants of the analysis can be applied to the industries of education, transportation, protection of ‘environmental’ resources, and other industries where governments tend to have a very visible presence. In order to gain much-needed clarity in policy analysis, we must refrain from comparing ‘public sector’ provision of a service and the provision of the service by a private sector crippled and deformed by government intervention. Rather, we should compare government provision of a service to the provision of the service as it would be based on free-market principles. Then, if we think that free-market provision of the service will be more effective and the service is currently provided largely or entirely by government, we should advocate a concurrent cutting of the government’s spending in that area and the loosening or elimination of the government’s interventionist restrictions of that industry. In other words, the real question is not: to cut the government budget or not to cut the government budget? It is: should this particular industry be run primarily by the government or should it be run primarily by competing private entrepreneurs according to free-market principles? Only by answering the latter question can we then answer the former question intelligently and effectively.             
         

Why Employers Cannot 'Exploit' Their Laborers

            In a previous post (http://thinkingabouthumansociety.blogspot.ca/2013/05/will-human-labor-become-superfluous.html), I explained why it is extremely unlikely that human labor, even unskilled human labor, will ever become superfluous, and hence why there is no reason for there to be permanent mass involuntary unemployment in a free-market system. Given this, human labor should be conceived of as an ever-scarce, ever-valuable, non-reproducible at will factor of production that is not specific to any particular industry. In this post, I will show how when we correctly conceive of human labor like this, it is clear that on a free-market, it is impossible for employers to ‘exploit’ their labourers.

            

           A labourer is someone who has something to sell, his labor services, to a purchaser that desires it, a producer (or for personal labor services, a consumer). This is similar to, say, someone who seeks to sell uranium to a (private) nuclear power plant owner, who needs it to produce power. What price and terms of sale will the uranium seller and the power plant owner agree on? Well, that depends on what the market price of uranium is, determined by the complex of mutually advantageous exchanges made by all market participants buying and selling uranium and made roughly uniform through the profit-seeking activities of market participants on the lookout for speculative or arbitrage gains on uranium. Neither the power plant owner nor the seller of uranium can unilaterally dictate the price and terms of sale because if they are unacceptable, one of them can find a buyer/seller of uranium elsewhere on the market who will probably be willing to make a deal closer to the market rate.

           

           If we just apply the same analysis to the labor market as we did to the uranium market, both markets for scarce, valuable, non-reproducible at will factors of production, we see how absurd the contention that employers routinely ‘exploit’ their laborers really is. If the power plant owner cannot ‘exploit’ the seller of uranium (and no one, to my knowledge, claims that they do), then why can employers ‘exploit’ sellers of labor services? An employer cannot just unilaterally and arbitrarily dictate the terms of employment and the wage of the laborers in his employ, unless he wishes to end up with no laborers at all. Sellers of labor services, like the sellers of uranium, can always look elsewhere if they are unsatisfied with the current purchaser of their goods/services. Like for uranium, a market price for a specific type of labor will indicate what employers are generally willing to pay for that type of labor and what laborers are generally willing to accept, so that the laborer and the employer know roughly what wage and terms of employment they have to settle on in order to reach a mutually beneficial deal.

           

            In the world of the exploitation myth, market prices are determined for every factor of production except for labor, but once labor is being bought and sold, suddenly price determination becomes a matter of ‘power relations’ and ‘exploitation’ rather than the standard market procedure. This makes no sense, as there is no good reason to assume one method of price determination for material factors of production, and a completely different one for human labor service factors of production.

            

           To this, some would reply that there is a difference. It is claimed that laborers absolutely need to work in order to survive, so they are pressed to sell at whatever terms are currently going. But the business selling uranium absolutely needs to sell its uranium in order to survive as a business, or else it will bring in no revenues and go bankrupt. Similarly, the employer of labor also absolutely needs labor services if his business is to survive, and if his business does not survive, what exactly is he going to be living on? Another contention is that human labor is different because being unemployed is such a traumatic experience and it is hard to find a new job, and thus people seek to avoid the possibility of unemployment even at the cost of being ‘exploited’. But is it really that much easier for a seller of uranium to quickly find a new bulk buyer, or for the employer of labor to seek out and train a new employee to fill the vacant position? Besides, unemployment is scarier currently than it would be in a free-market system because of the institutional wage rigidities created by the minimum wage policies of governments and their tolerance of coercive labor union activities, thus creating a significant amount of institutional unemployment. The government creating the boom-bust cycle through its inflationary policies also creates prolonged periods of high unemployment in the bust phase. Moreover, the government’s inflationary policies, through a sapping of the purchasing power of the worker’s wage, and its policies which discourage capital accumulation, both serve to reduce the real wages of workers, thus making the workers more desperate for work than they otherwise would be.

            

           The existence of unemployment, it is true, creates more of a ‘buyer’s labor market’ where employers have the advantage, when hiring for certain positions, of knowing that there is a pool of eager potential workers seeking jobs to fall back on, and thus tending to make the employers bolder in their demands. But this unemployment is primarily caused by government policies, and government policies sapping the worker’s real wage rates also serve to weaken the worker’s bargaining position. Thus, to claim that this situation is a result of the ‘exploitation of labor’ inherent in a free-market is not correct, when it is interventionist government policies that create many of the problems in the first place.

            

           With this discussion in mind, I will now go on to consider various so-called ‘pro-labor’ laws imposed by interventionist governments. These laws implicitly assume that the exploitation theory is correct and that employers have arbitrary power over their laborers, an arbitrary power that can only be curbed through government action. In fact though, we will see that these laws have one, or more, of three effects: 1. To create institutional unemployment. 2. To raise the price of consumer’s goods. 3. To limit the worker’s employment options.

1. The Minimum Wage: Minimum wage laws are based on the erroneous assumption that employers have the power to pay their employees whatever they want, unless the government intervenes. Their main effect is to create institutional unemployment. By setting a legal minimum price on human labor services, any human labor service not worth more than the minimum price to an employer will not be purchased, and the laborer selling this service will be forced into unemployment. People who can somehow land a job whose wage has been pushed above its market rate by the minimum wage are benefited in their capacity as laborers, but at the expense of laborers forced into unemployment and of consumers who are forced to pay more for the good in question which now requires more expensive labor to produce.

2. Tolerance of Coercive Labor Unions Activities: When a labor union can use its special privileges, granted by the government, to engage in coercive actions such as strikes which physically prevent employers from hiring ‘strike breakers’, they have the power to set a minimum wage above the market rate in their field of operation. When unions are confined to only certain sectors of an economy, they do not directly create unemployment, but rather raise the wages of their members at the expense of forcing other laborers out of the field. These other laborers will presumably now work in another, less optimal field, and through increasing the supply of workers, will decrease the wages of workers in the fields they enter. This can, of course, lead to unemployment if the unions are prevalent economy-wide, or if the forcing of laborers out of the unionised field into non-unionised fields sends the market wage in the non-unionised fields below or further below the government’s minimum wage.

3. Maximum Hour Legislation: This type of legislation imposes a legal cap on the amount of hours per week certain types of laborers are allowed to work for an employer. It is based on the erroneous assumption that employers have the power to make their laborers work however long they want them to, no matter what wage they are paying them for their work. In reality, in most cases such legislation is superfluous, as it is often set at such a level that most laborers probably would not want, or have to, based on market conditions, work for more hours per week than the cap. When it is not superfluous though, it is usually harmful. It limits the worker’s options, preventing him from working more hours per week if he really wants the extra money. If coupled with coercive labor union ‘take-home pay’ demands, where the unions demand shorter hours for their members but the same weekly pay, upon threat of coercive strike, than the effects are the same as an increase in the union-imposed minimum wage rates for their members, discussed above.

4. Mandatory Overtime Legislation: This type of legislation usually provides for a buffer between the legal maximum hours per week and the legal standard work week hours where employers, if they want their laborers to work those extra hours, must pay extra wages, in Canada 1.5 times the normal hourly wage. The assumptions behind it and the effects are similar to Maximum Hour Legislation, except that at least for overtime there is an expensive option for employers who really need the extra hours from their laborers for a certain period. On a free-market, overtime provisions could of course be stipulated in individual employment contracts, but that would be between the laborer and the employer, probably based on the standard market rates and practices with regards to overtime for that kind of job.

5. Mandatory ‘Benefit’ Legislation: Sometimes governments, or coercive labor unions, force employers to provide ‘benefits’ to all of their permanent employees, such as health insurance or unemployment insurance or a pension plan. It is assumed that these are pure gains to the workers, heroically extracted from the grasping, exploiting hands of the employers. In fact, they are just a substitute for the equivalent amount of cash wages. If a minimum wage above the market rate is not in place, employers will tend to just pay less of a laborer’s wages in cash and more in the form of ‘benefits’. If a minimum wage above the market rate is in place, the result of forcing employers to provide ‘benefits’ is a de facto increase in that minimum wage, as on top of the minimum cash wage are added minimum benefits, which cost the employer money just as surely as cash wages do. The result is unemployment and the raising of consumer goods prices, or if employers can hire in such a way that their laborers do not count as full time employees entitled to ‘benefits’, a proliferation of a sub-optimal type of labor relation and less options for the laborer in choosing his terms of employment.

6. Workplace Safety Regulations: These kinds of government regulations mandate that certain pre-cautions to help ensure the safety of the laborers must be set in place by their employers. They are based on the erroneous assumption that employers have the power to put laborers in however dangerous of a workplace that they choose, and the laborers have no power to protest. In fact though, just as laborers do have bargaining power over wages and ‘benefits’ based on the market price for their services, they also have bargaining power over the level of workplace safety, which can be analyzed like a benefit. Employers would have to compete with each other to buy labor services not just based on wages, benefits, and working hours, but also on workplace safety. Probably, on a free-market, third-party ‘workplace safety certification organizations’ would pop-up to rate the workplace safety of a particular employer. Those with a reputation for attention to detail and integrity would be heeded by both laborers and employers, employers seeking to gain as good a workplace safety level with these trusted organizations as was cost-effective and laborers taking the workplace safety level of their potential employers into account when making their decision. Workplace safety regulations take competition and voluntarism out of this process, and simply decree, essentially, that employers must pay the workers less in cash wages and other benefits in order to invest money in meeting the workplace safety regulations. As with benefits, the result is either a lowering of the cash wage in the name of workplace safety or the creation of more institutional unemployment if a minimum wage above the market rate is in place. It is highly likely that workers, on a free-market, would value workplace safety highly and be willing to give up some of their potential cash wage in exchange for it, but under the current system, as with ‘benefits’, they have no choice or discretion in the matter. Moreover, on a free-market, the law should still require employers to disclose any significant known risks of their workplace to the employee, and if they fail to, hold the employer liable for damages should the employee be injured, as the employer would essentially be guilty of fraud. We should not of course, fail to mention most governments’ hypocrisy in this matter, legislating workplace safety regulations for private employers but themselves sending soldiers to be shot at in hostile countries and astronauts on risky space missions.

            

           Thus, it is simply not the case that laborers’ wage rates and terms of employment are determined by employers’ exploitative urges on one hand and governments’ and coercive labour unions’ valiant attempts to curb this exploitation on the other. As with any factor of production, wage rates and terms of employment are determined based on market prices and standard market arrangements for that kind of labor, themselves based on the complex of mutually beneficial exchanges with regards to that labor service made by all market participants. Given this, government ‘pro-labor’ policies are just attempts to set, directly or indirectly, minimum prices for labor services above their free-market prices, which, as with any other kind of price control, lead to unintended effects that most people would not consider desirable.