Dissecting 'Leftist' Statism

            ‘Leftist’ Statism, the ideology that politicians and ideologues considered to be ‘on the left’ of the political spectrum use to justify government intervention, consists of three main pillars: belief in extensive government control over business, egalitarianism, and Social Safety Net-ism. We will examine and critique these pillars in this post to see what ‘left-wing’ statism is all about and why I think it is best to avoid most of it.

1. Government control over business:

            Leftist statists generally believe that government should be relatively heavily involved in the business world, whether through ownership of government enterprises, nationalization of industries, or regulation of otherwise private businesses. Some justify this on Marxist grounds, arguing that private business exploits their workers and/or rip-offs their customers regularly. Some justify it by pointing to positive and negative externalities, and in recent years, environmentalism has been used to justify government ownership and regulation.

The Marxist justification rests on the notion of ‘economic power’ being just as bad if not worse than power to inflict physical damage, which I am critical of here: http://thinkingabouthumansociety.blogspot.ca/2013/04/why-physical-violence-is-useful-basic.html    

The general externalities justification can be valid in some cases, but must be used with care and is liable to be abused, which I discuss here: http://thinkingabouthumansociety.blogspot.ca/2013/03/economic-externalities-raison-detre-for.html

The environmentalist justification is generally overplayed by leftists, and there are many better ways besides heavy handed government intervention to deal with any environmental problems that might arise, which I discuss in the series of posts starting here: http://thinkingabouthumansociety.blogspot.ca/2013/03/thoughts-on-environmentalism-general.html

However it is justified, whether there is some truth to the justifications or not, there are certain significant disadvantages of government interventions with business and government ownership of businesses which cannot be dismissed lightly by anyone seeking to make an informed decision on whether to support economic freedom or government interventionism in a particular case. These apply to any government-provided service that can be provided by private enterprise, and to a lesser extent to government regulation of private business, which is when the government arrogates to itself a portion of the ownership/management functions of an otherwise privately-owned business. They are:

1. Lack of market pricing for the government service and less importance placed on profit-and-loss calculations impairs the processes of capitalistic economic calculation that serve as a guide to private business. Political considerations (what will be popular or allow the incumbent government to maintain power) will correspondingly play a greater role in decision-making (for more on the benefits of economic calculation, see tip 5 here: http://thinkingabouthumansociety.blogspot.ca/2013/02/5.html).

2. The funds necessary to start and usually to continue operating the government enterprise are collected through taxation levies on the population. This will tend to lead to a more cavalier use of the initial ‘investment’ funds than private business would, who only receive investment funds by convincing investors that it is a promising investment, well-worth taking a risk on. In addition, when gathering private investment funds, the funds available are limited by the willingness of investors to put their money in one particular venture rather than in any other. When levying taxation money to fund a government service though, it is impossible to know exactly how much to levy to fund that particular service over other government services, or over leaving the money to private individuals. The willingness of investors and their consideration of the prospects for profit of a particular venture over any other sets a limit to the amount of private investment going into any enterprise, but this limit does not exist for government services. Also, the taxation levy will generally fall more heavily on the funds of richer people, which will tend to undermine incentives to produce for the consumers and will most likely undermine capital accumulation (discussed in more detail here: http://thinkingabouthumansociety.blogspot.ca/2013/03/issue-analysis-higher-taxes-on-wealthy.html)

3. Either through legislation or through the unfair advantage of being able to get funding through coercive taxation levies, government enterprises are able to legislate away (by prohibiting competition) or drive away all of their private competitors. As a result, not faced with fierce competition as private enterprises are, government enterprises are able to be more lacklustre and less cost effective in their service to the consumers.

4. When it comes to pricing, government enterprises tend to either charge subsidized prices, below what would have been the market price for the service, or monopoly prices, above what would have been the competitive market price for the service due to their legal or quasi-legal monopoly position in the industry. If they charge below-market, subsidized prices, the service is not allocated efficiently to the consumers who want it most urgently, and shortages result because of the government artificially stimulating demand without an increase in supply. ‘Free’ roads are a good example of this, and constant traffic jams their logical result. If the government charges monopoly prices in order to try not to run too big a deficit to be paid for by taxpayer money, then access to the service is artificially reduced below what it otherwise would have been if free-market competition had been allowed to operate to reduce costs and prices, and improve quality, in the industry, as it so often does.  

            

           The main error in this aspect of leftist, statist ideology is to either ignore, deny, or unjustifiably downplay these important disadvantages of government ownership of business.

(Note: For a great, succinct critique of government-provided services, check out the following excerpt from Murray Rothbard’s Power and Market, found here: http://mises.org/daily/1471)

2. Egalitarianism:

            There is no getting around the fact that something about an inequality of material wealth and income among members of a society just bothers leftist statists, and thus egalitarianism becomes a major pillar of their ideology. One can sometimes convince holders of this ideology that a certain degree of inequality of material wealth and income is necessary in a prosperous society to maintain incentives to produce for the consumers and such, but they will tend not to be happy about it and will constantly seek ways to reduce it.

             

           There is certainly something to be said for considering more material equality among members of a society, other things equal, as a good thing. Though we cannot say so with scientific certainty, it is likely that a billionaire accumulating another billion dollars would result in less of an increase in general happiness than 10000 people with modest incomes being able to accumulate an extra hundred-thousand dollars each. The problem is that, unless this change in income distribution occurs through the play of market forces, other things are necessarily not equal. If it is brought about through government tax and transfer policies, then incentives to produce for the consumers and capital accumulation are reduced, while harmful government bloat is encouraged, all resulting in a tendency towards a decline in the material standards of living of all members in a society. For a full discussion of this, see: http://thinkingabouthumansociety.blogspot.ca/2013/03/issue-analysis-higher-taxes-on-wealthy.html

            

           However, even if an egalitarian were to recognize these negative effects of egalitarian government policies (which most do not), the question remains: how highly does the social thinker evaluate egalitarianism, taken on its own? More specifically: how much societal material wealth is the social thinker willing to sacrifice in pursuit of egalitarianism?

            

           To these questions, I, personally, would respond: egalitarianism is generally overrated as a good. if we are to value ‘fairness’ in the distribution of material goods as a good in its own right, what’s wrong with market-meritocracy (reward through ability to serve the consumers) as a standard? Most egalitarians probably wouldn’t be convinced to change their views because of this answer, and I wouldn’t really expect them to. Whether a more egalitarian distribution of material goods or a more market-meritocratic distribution of material goods (divorced for now from the respective consequences of their implementation) is more ‘fair’ is, I think, a bit of a subjective question. For whatever reason, I think the latter is fairer, while for whatever reason, others think the former is fairer. I don’t think that there’s a rational way, divorced from the utilitarian effects of the implementation of these ideals, of evaluating which standard of distribution is fairer, just as there’s no rational way, divorced from say, their respective health effects, of evaluating whether chocolate or vanilla ice cream is ‘better’. The answers will change depending on whose subjective preferences are being consulted.

            

           How then, to critique the egalitarian aspect of leftist statist ideology? Even if we can’t ultimately critique people’s subjective evaluations of egalitarianism as an isolated good, we can critique egalitarianism based on the other utilitarian effects of its implementation through the coercive power of government, which we have done above. We can also critique the conviction, found among many, though perhaps not all, egalitarians, which holds that egalitarianism, is objectively, morally better than any other standard for evaluating the distribution of material goods among members of a society. These people are certainly entitled to their opinion, but at the end of the day it must be recognized that this is merely a value judgement that not everyone accepts. As such, it should not be employed as some kind of intellectual trump-card, used to banish any objections to egalitarian policies by merely proclaiming them to be ‘immoral’.

3. Social Safety Net-ism:

            Social Safety Net-ism is the doctrine that government has a right and a duty to ensure, using funds levied from taxpayers, that people living in the territory under their rule do not die or suffer serious physical damage due solely to their material poverty. This is the aspect of leftist statist ideology that I, and I think many others, sympathize the most with. Leftists seem to realize this, and as such use Social Safety Net-ism as the vanguard of much of their argumentation in favour of government intervention. Consider the following disparaging remark about libertarianism from leftist political comedian Bill Maher, saying that while Social Security and Medicare are flawed programs: “it beats stepping over lepers and watching human skeletons shit in the river and I also like not seeing those things. I’m selfish that way!”. Here, Maher is using Social Safety Net-ism to try to discredit an entire intellectual movement and to defend some pretty questionable and controversial government policies. Of course, libertarians contend that such horrors would never occur in a prosperous free-market society due to the greater general material prosperity that would result from greater economic freedom, combined with private charitable efforts that would almost certainly grow if they weren’t being crowded-out by government programs. Even if we were to ignore or reject such considerations though, Maher’s criticism is still misleading.

            

           We see why when we ask the question: is the entire apparatus of the United States welfare state really necessary to prevent people from dying in the streets? Is that really the sole purpose of these programs and policies? Obviously, the answer is no. Social Security and Medicare have clear egalitarian motivations, and both are premised on the assumption that government will be able to make better use of the money collected from taxpayers through these programs than individuals would. Medicare is also premised on the assumption that a private medical market is not the way to go, and that heavy government interventions are necessary to ‘correct’ the alleged ‘failings’ of that market. In fact, if the entire current US welfare state was scrapped, and simply replaced by a welfare system that came to the aid of truly impoverished people who really were at risk of death or serious physical damage due solely to poverty, the principle of Social Safety Net-ism would be preserved in a form that would cost the taxpayers much less of their funds and liberties. What wouldn’t be preserved would be the first two principles of leftist statism which we discussed earlier, the desirability of government control of business and egalitarianism, principles that are embedded in the vast majority of government welfare programs.

            

           Thus, leftist statists, particularly when confronting libertarians, often pull an intellectual bait-and-switch maneuver. They use their most sympathetic principle, Social Safety Net-ism, to argue against libertarianism in general, using it to defend policies that also involve a heavy dose of government control of business and egalitarian principles.

            

           Personally, I sympathize enough with Social Safety Net-ism to advocate it as a political principle, but I am always careful to separate it from government ownership of business and egalitarian principles. For my reasons for advocating Social Safety Net-ism, and my proposal for a government welfare system that advances this principle and this principle alone, see the following: http://thinkingabouthumansociety.blogspot.ca/2013/03/issue-analysis-welfare-social-safety-net.html.

           

           Besides unjustifiably lumping it together with policies that clearly advance government control of business and egalitarian principles, leftist statists also tend to overrate the importance that Social Safety Net-ism policies would take on in a free-market society. This is because they tend to underrate the extent of upward social mobility in a free-market society and mistake it for a caste society, an idea which I criticize here: http://thinkingabouthumansociety.blogspot.ca/2013/04/why-free-market-society-is-not-caste.html         

                

   

The Perniciousness of the Obfuscatory 'We'

            

           One of the biggest obstacles to clear thinking in the social sciences is the failure to adhere to methodological individualism. Rather than taking individuals as the basic unit of analysis, many fuzzy thinkers arbitrarily assign people to collectives and assume that the collective has separate interests and characteristics, different from the individuals that make it up. Such thinkers will often use the term ‘we’ to denote the most common collective: the territorial political unit to which the reader and the thinker belong.

            

           This kind of thinking, and its perniciousness, is illustrated by the saying that: “government debt doesn’t matter, because we owe it to ourselves”. To the methodological individualist, several questions immediately pop up. Who are the individuals that are the creditors in this arrangement and who are the individuals that are the debtors? Pursuit of this line of thinking will lead to the conclusion that the creditors are the holders of government bonds, while the debtors are the future taxpayers. For the government does not create resources, it takes and redistributes resources. And the people it is taking from must necessarily be future taxpayers or inflation victims, if the government is not to renege on its debt. The absurdity of the quoted statement can easily by shown because it implies that defaulting on the government debt would be equally as irrelevant as piling it on! If ‘we’ owe it to ‘ourselves’, then if ‘we’ stop owing it to ‘ourselves’, then there has been no change. But this is absurd: everyone who held government bonds would be significantly affected if they were totally repudiated. That this might actually be the most tolerable and ethical solution to the public debt problem is not the issue at the moment, the point is that the paying of government debt is a redistribution from future taxpayers to government bondholders.

(Note: This example and discussion was inspired by the following Murray Rothbard article: http://mises.org/daily/1423)

            

          Another common use of the obfuscatory ‘we’: “we (Canada) won three gold medals at the Olympics”. This might seem like a relatively benign use of the term, after all, everyone residing in the territorial borders of the political unit called Canada can properly be called Canadian. But, the methodological individualist would inquire, did ‘we’ really win any gold medals? Athletes, who were on team Canada, through their excellence in a particular sporting event, won some gold medals. What did the random Canadian insurance broker do to contribute to this success? One could argue that he paid taxes that went towards covering part of the expenses of the athlete, but this just means that the government of Canada forcibly took some of the insurance broker’s resources and gave it over to this particular athlete. But this operation is not enough to fuse the athlete and the insurance broker into a ‘we’ that is winning anything! What if the athlete doesn’t want ‘us’ to win the medal, he/she wants himself/herself to win the medal alone? What if someone in the ‘we’ does not want to be part of the Canadian ‘we’? Is there a way to get out of the Canadian ‘we’, or are you in the Canadian ‘we’ forever, like it or not, no matter what this ‘we’ is said to have done? What if, instead of something benign like showing excellence in athletics, the ‘we’ in question is off killing foreign civilians in the Middle East, or wantonly robbing and imprisoning its own people? Is there still no way out of this all-encompassing ‘we’?

            

           The examples abound, sometimes even including all of humanity: ‘we’ are destroying the planet, ‘we’ are going to blow ourselves up with nuclear weapons, ‘we’ need to help the poor, or the Africans, or cure cancer. But all this means nothing. The methodological individualist will ask: ‘who’ is destroying the planet? ‘Who’ is going to blow people up with nuclear weapons? ‘Who’ would be materially responsible for doing these charitable things mentioned? Only once we know specifically ‘who’ is doing something negative can be explain why they are or why they are being allowed to, and hopefully think of a solution. Only once we know specifically ‘who’ will be responsible for providing the resources for some project or another can we decide whether funding the project in this way will be effective and moral, and what its effects on the incentive structure of society will be.

Using ‘we’ is a way for sloppy thinkers to advocate programs without presenting the full analysis of their effects by obfuscating all the important social aspects through excessive aggregation. For instance, Keynesian and Monetarist economists always go on about a ‘price level’ that goes up or down depending on what ‘monetary policy’ (ie. speed of governmental money printing) is adopted. It is implied that when money is injected into the ‘economy’ (another obfuscatory collective), all the prices in the economy will move up or down at the same time, and it just falls to the monetary planner to make this level correspond to the point of ‘full employment’. But, the pesky methodological individualist will object, how would all the prices in the economy move up or down at the same time when they are set by millions of individual market interactions? In fact, the newly injected money must start in the possession of one individual, and only through the purchasing of this individual, and the purchasing of those businesses that the individual patronizes, and so on, will the money flow through the economy, eventually raising all prices in an uneven and choppy fashion. Obviously, the earlier receivers of the new money will benefit because their money income is higher due to the injection before all the prices in the market society have adjusted to the new amount of money in circulation. The same applies in reverse to the later receivers of the new money, who will lose.

Thus, we see that when we drop the obfuscatory collectives and mechanistic analogies and look at real life individuals, we see that government money printing is a redistribution of resources. The biggest beneficiary is the money creator, ie. the government (officially the central bank, but they remit their profits to the government and buy government bonds with the new money), and then those bankers connected to the central bank, then their favoured clients, etc… Moreover, this uneven effect disrupts the economy in other ways besides this redistribution, as it temporarily, artificially lowers the interest rate and misleads entrepreneurs into investing in riskier and longer-term projects, when the requisite savings to make this profitable have not in fact been accumulated. This error will be revealed in a painful bust when the money printing slows (which it must eventually, unless it ends with a catastrophic hyperinflation).

            

           These are some notable examples of obfuscatory collective terms being used in the service of sloppy social science analysis. To keep your thinking on this subject sharp, rigorous and accurate, be sure to always adhere to methodological individualism, and be wary of ‘we’.     

Why Physical Violence is a Useful Basic Concept

            Central to libertarian political philosophy and free-market economics is the distinction between voluntary action and coerced action. This distinction presupposes that the threat of physical violence is an important enough concept to warrant making its presence or absence, when an individual is making a decision, a vital categorization device. In this post, we will examine this presupposition, and will end up supporting its employment.

            

           The central axiom of many branches of social science is that humans engage in action, or act, in order to substitute a less satisfactory state of affairs for a more satisfactory state of affairs, evaluated based on their subjective value scales. This axiom applies to both voluntary and coerced action. Voluntary actions imply that when faced with a choice: do I do a certain thing or not, or do I exchange a certain thing/things for a certain thing/things with another human, if the decision was made in the affirmative it was because the actor estimated that the action would be an effective way of proceeding from a less satisfactory state of affairs to a more satisfactory state of affairs. For example, if we observe someone cutting their nails, we can deduce that they estimated that cutting their nails would be an effective way of proceeding from a (subjectively) less satisfactory state of affairs where their nails were long to a (subjectively) more satisfactory state of affairs where their nails are short. If we observe someone exchanging an orange for another’s watermelon, we can deduce that they estimated that having a watermelon at the cost of having an orange would be an effective way of proceeding from a (subjectively) less satisfactory state of affairs where they had an orange but not a watermelon to a (subjectively) more satisfactory state of affairs where they had a watermelon, even at the price of giving up an orange.

            

           We must change our analysis of the particulars when we are faced with a coerced action. In this case, the coerced actor has two basic choices: do what the coercer tells them to do, or face physical reprisal, which could be as severe as a violent death. This is what Ludwig von Mises calls a “hegemonic bond”, as opposed to a “contractual bond” like the one described above with the exchange between the orange and the watermelon owners. The characteristic feature of a hegemonic bond is that the coerced actor does not determine the particulars of his actions; the coercer does this for him. All the coerced actor decides is: do I do what is commanded, or face physical punishment?

For example, let us return to our one man with an orange and another man with a watermelon. This time, however, the man with the watermelon has a gun, and has no qualms about using it to inflict harm on the man with the orange. Let us assume, this time, that the man with the orange does not want to exchange his orange for a watermelon, thus demonstrating that he values the orange more than the watermelon. But the man with the watermelon will have none of it, he brandishes his gun at the man with the orange and says: “hand over the orange or I’ll shoot you in the head!” The man with the orange, after having rejected the contractual bond of exchange, is now faced with the choice inherent in any hegemonic bond: do what is commanded or face a violent physical reprisal (in this case, death). If the man with the orange decides that he values his life more than his orange and his pride, and hands it over to the thuggish watermelon man, we must still say that he chose to substitute a (subjectively) less satisfactory state of affairs where he was at risk of imminent death, for a (subjectively) more satisfactory state of affairs where his life is preserved at the cost of his orange and his pride. However, it would seem that there is something so primordially different between the contractual exchange described previously and the hegemonic bond described above, that we are justified in treating them as two very different phenomena.

            

           What effect, exactly, did the credible threat of physical violence have on the actions of the coerced man? Firstly, while in the case of the contractual exchange, the man received what he wanted, in the case of the hegemonic bond, the man just avoided what he did not want (death) at a price (the orange and his pride). This distinction is not decisive though, as we can think of a few cases where, even in the absence of the threat of physical violence, a man can be induced to act to just avoid what he does not want at a price. For example, imagine a man who owns a hardware store. One of his customers has bought a drill from him, which the customer is unsatisfied with. The drill had a 90 day warranty, but started to malfunction on the 99^th day of ownership. The customer returns with it to the store and says: “I demand that you replace this drill, at no charge, with a new one. If you do not, I will tell everyone I know and I will post on the Internet that your store sells shoddy merchandise and I will recommend that no one shop here.” Here, we have a case where the hardware store owner is faced with the choice: give in to the customer’s demands and give them a new drill, or face the loss of reputation that the customer’s threatened actions would entail.

            

           What is it that separates this scenario from the hegemonic bond described previously? Leaving aside questions of legitimate property rights (which presupposes that arbitrary physical violence is deemed an illegitimate and vicious way of acquiring property), the main distinction is the level of harm that the reprisals in question could cause to the deciding actor. While potentially damaging, the aggrieved customer’s verbal hate campaign can cause only so much damage to the hardware store owner’s business, and thus the concessions that this threat could extort from the hardware store owner would be fairly circumscribed.

            

            Now though, let us consider a completely unrealistic, but intellectual interesting, hypothetical scenario. Let us assume that a free-market society has been established, and government is confined to protecting property rights and the sanctity of contracts. Imagine that one corporation, the Mammoth Corporation, through outstanding service to the consumers and marvellous business acumen in many different industries, manages to accumulate a massive pile of wealth. It consistently uses this wealth to buy up more and more of the earth’s surface, until eventually it comes to own the entire earth’s service. As soon as it does though, it ceases acting as an efficient, consumer-friendly business firm and starts acting tyrannically. It issues orders to members of the earth’s population, and anyone who disobeys the orders is prevented by the Mammoth Corporation from holding a paid position in the Mammoth Corporation or from buying anything from the Mammoth Corporation. Any company that does business with the Mammoth Corporation (all of them, because Mammoth Corporation owns all the land on earth) is also prevented from hiring or selling goods to these ‘excommunicated’ people who disobeyed Mammoth Corporation orders.

            

           Here we have a case where the directors of the Mammoth Corporation literally have the power of life and death over everyone in the world, without using any threats of physical violence. They essentially have the fearsome powers of a socialist dictatorship, though the method of acquiring those powers was originally through service to the consumers and voluntary purchase of land, where with the socialist dictatorship it is through violent expropriation of property and armed terror. Nevertheless, it would be disingenuous to argue that because of their method of acquiring these powers, the powers are not as bad. The fact is that the Mammoth Corporation, as surely as an armed gang, can threaten their victims with death, and their coerced victims will act with that fact in mind.

            

           Now, of course, this hypothetical situation could never occur in a free-market society. Though there are economies of scale inducing businesses to consolidate, there are also dis-economies of scale (such as more detached management, more bureaucratic structures, less rigorous specialization) which induce businesses not to become too big. Also, completely eliminating a market for an input in a production process by monopolizing it will create an area of the economy where economic calculation cannot operate efficiently due to lack of market prices generated for that input (see Tip #5 in my 'How to Think About Social issues' series for more on economic calculation). This will result in an inefficient and more unprofitable allocation of resources by the monopolizer, which will tend to prevent such monopolization from occurring in a competitive, profit-seeking free-market economy. Empirically, nothing even remotely close to the hypothetical scenario described above has ever occurred or showed signs of occurring. Also, to think that every little usable scrap of land of the entire earth could be purchased from their hundreds of millions of individual owners by one big corporation is incredibly far-fetched.

            

            Note that I deliberately made the Mammoth Corporation a land monopolist for a very good reason. This is because, contrary to the ideas behind antitrust laws, the only way that a market participant can secure a true monopoly is by monopolizing one of the original, raw, production inputs: land (real estate, agricultural land, and natural resources) and labour  Since slavery is not permitted and thus people can’t own any labour but their own, but only rent it, labour cannot be monopolized by a single market participant. This leaves land as the only factor of production that could be monopolized on a free-market. For instance, even if we assume that a large steel company has 100% market share in the steel market, we are still not permitted to say that the company is a real monopolist unless it owns all of the land in the world where iron ore or coal could be extracted. If it does not, it must still serve the consumers efficiently, even with its 100% market share, as if the company became inefficient, competitors could start steel factories of their own using the un-monopolized natural resources that constitute raw inputs for steel-making.  

            

           Despite all this, from hypothetical considerations such as these, some social thinkers have come up with the concept of ‘economic power’. The ownership of private property is seen to give the owner ‘economic power’, which he may use as a weapon by refusing to trade the fruits of that property or give ‘jobs’ to people who he doesn't like. The hypothetical scenario described above is the epitome of ‘economic power’, but, according to the champions of this concept, lesser degrees of ‘economic power’ exist in the real world and can be just as coercive as physical power and the threat of physical violence.

            

           The problem with the idea that physical power and ‘economic power’ exist as problems side by side, coercing people into making all of their choices, is that one cannot combat ‘economic power’ without employing physical violence aggressively  An ‘economic power’ theorist could assert that in the example given earlier about the man with the orange and man with the watermelon with a gun, by refusing to trade with the man with the watermelon, the man with the orange was exercising ‘economic power’ over the man with the watermelon, by withholding his orange ‘monopolistically’. But, the only way to combat the man with the orange’s ‘economic power’, is for the man with the watermelon to establish the hegemonic bond we described above by threatening the man with the orange with physical violence, in order to coerce him into handing over the orange.

            

           Thus, the question, in every instance, is: which is the more worthy of fighting and labelling with the odious term ‘coercion’, ‘economic power’ or physical power, refusal to exchange or employing the threat of physical violence to cajole others to exchange? I maintain that in the vast, vast majority of hypothetical cases, and in all cases that could realistically arise in a free-market society, the threat of physical violence is much more coercive and harmful to its victims than the threat of ‘exercising economic power’ by refusing to exchange. In order to attain the coercive power that any thug with a knife could attain with the threat of physical violence over his chosen victim, a market participant would have to amass such an astronomical amount of wealth and make such an unlikely series of voluntary land purchases to really monopolize the market and amass enough ‘economic power’. Otherwise, the existence of competitors, eager to make a profit by selling goods and employing productive people, would render the threat of any market participant using his ‘economic power’ as a weapon more on par with the magnitude of the threat of the disgruntled hardware store customer than with the magnitude of the threat of anyone capable of inflicting physical injury or death on his victim.

           

            Because of the fact that the coercive magnitude of anyone threatening to inflict physical violence is leaps and bounds above the threat of any realistic exercise of ‘economic power’ or verbal slander power, it is permissible, and indeed necessary for clarity of social thought, to treat the threat of physical violence as a conceptual category of its own, and mostly disregard any other potential forms of ‘coercion’. I would not object if anyone, to prevent abuse of ‘economic power’, proposed putting a law on the statute books prohibiting any individual or organization from owning, say, 30% or more of the earth’s usable land surface, especially because the chances of such an eventuality occurring are negligible at best. In most cases though, the real coercive threat in society is that of physical violence, and thus fighting any negligible amount of influence that ‘economic power’ could have with threats of physical violence does not make sense, if your goal is to reduce coercion’s role in society.

As such, the conceptual validity of treating actions and exchanges not influenced by the threat of physical violence as voluntary, and of treating actions and exchanges influenced by the threat of physical violence as coerced, is sound and necessary for clarity in social thought.         

                 

      

Why a Free-Market Society is not a Caste Society

            According to some social commentators, economic status (rich, middling, or poor) constitutes a rigid social caste. Families that are rich will stay rich, families in the middle will stay in the middle, and poor families will remain poor. It is said to be a ‘myth’ that one can attain a higher economic status through hard work or fall to a lower economic status through negligence. What is necessary, instead, is for the poorer and middle classes to use their political majority status to confiscate and redistribute the rich’s resources among members of their own class.

            

            This account, when talking about a free-market society, is false. It rather fits a status society such as the feudal society of the rural areas in the European Middle Ages, where people were generally born into their social stations and were maintained in them through a series of political privileges, for the noble classes, or political encumbrances, for the peasant and serf classes. In a strictly free-market society, people can amass wealth through putting virgin land into production, selling their labour to employers, selling their products to buyers, or loaning resources (usually money) at interest. Anyone can engage in any of these activities legally, if he has the means to do so. Individuals in a free-market society do, it is true, start with different amounts of resources at their disposal, generally depending on how much wealth their parents had been able to amass and decided to give to or use for the benefit of their children. But this is all part of the incentive structure of the free-market. Without the ability to help their children out with their amassed wealth, parents would have less incentive to amass wealth through serving the consumers well, and far less incentive to improve their properties or accumulate capital, if they could not pass down these things to their children.

            

           Even in the ‘mixed economies’ (economies where the government intervenes significantly in the free-market order) that characterize most of the developed world today, it is not empirically true that rich families stay rich and poor families stay poor. Free-market economist Gary Galles summarizes a 2007 US Treasury study called Income Mobility in the U.S from 1996 to 2005 as follows:

“The Treasury found that those with the very highest incomes in 1996 — the top 1/100 of 1 percent — had their incomes halved by 2005 (missed by using statistical classes, because such decreases move people out of the top category). That hardly shows a class of rich growing ever richer at the expense of other classes.

Other income categories revealed a similar story. From 1996 to 2005, the incomes of those originally in the top 1 percent and 5 percent both declined; the incomes of those originally in the top 20 percent increased 10 percent; but those originally in the bottom 20 percent saw a 91 percent increase in income (missed by using statistical classes, because such increases move people out of the lowest 20 percent)”

Gary Galles, “The Rich Aren’t Dispossessing the Rest”, Mises.org, https://mises.org/daily/5799/The-Rich-Arent-Dispossessing-the-Rest

            Of course, supporters of government intervention could always claim that this degree of social mobility is due to government interventions, while libertarians could claim that with less government privileges to established corporations and with the more dynamic economy that more freedom would bring about, social mobility could increase even more in a real free-market economy.

If we go back to mid to late 19^th century America, probably the freest an economic system has yet been in world history, we have tons of instances of ‘rags to riches’ stories. Andrew Carnegie was from a poor Scottish family that needed a loan from a friend to even buy passage to America, but he rose through the business world to become fantastically wealthy as the most successful steel magnate in history. John D. Rockefeller came from modest roots but ended up becoming fantastically wealthy as the most successful oil magnate in history through a series of bold but well-managed entrepreneurial ventures. Indeed, throughout early American and Canadian history, numerous penniless newcomers, through intelligence and hard work, significantly improved their material conditions and formed the social basis of two new prosperous countries. This evidence, complemented by theoretical considerations, strongly suggests that social mobility will be the norm in a free-market society.

Most supporters of egalitarian government intervention (except perhaps radical Marxists) do not deny the evidence above, or blatantly assert that socio-economic classes in free-market societies are analogous to castes in feudal systems. They do, however, come up with three other reasons why they claim the social mobility of the free-market society will not be sufficient to give everyone a ‘fair chance’. These are: the existence of discrimination, the so-called ‘poverty trap’, and the lack of educational opportunities for poor people. We will proceed to discuss these now.

1. Discrimination:

            According to feminist and anti-racist activists, certain groups such as women and ethnic minorities face ‘structural discrimination’ and thus do not have the same economic chances as males of the majority ethnic group. It is alleged that employers irrationally discriminate against these groups when hiring, even when their qualifications and prospects for being a success in the position are equal or better than that of any male member of the majority ethnic group also applying. As a result, the potential social mobility of women and minorities is allegedly unacceptably reduced, and government must take action by granting subsidies or calling for affirmative action programs for the groups in question.

            

           Whether the psychology of most white male employers and its results described above is or is not accurate, a true free-market system would almost certainly result in less of such discrimination. This is because, in a free labour market, such irrational discrimination against women and minorities would open up significant arbitrage opportunities for the non-racist/sexist employer. Any significant discrimination against women or minority groups would result in a situation where premium wages were being paid for male or majority group employees. Any non-racist/non-sexist employer could take advantage of this, hire women or minority group members at a discount, and thus have lower labour costs of production than the racist/sexist employer, putting the former at a competitive advantage. As more employers copied this strategy, the wages of the disadvantaged groups would be driven up by competition for their services, tending towards an elimination of any ‘wage gap’ that might exist.

            

           In addition, at the same time, it is likely that any racist/sexist psychology that might exist in society would diminish as women and minority members are increasingly viewed in similar occupations and economic positions as males and majority ethnic group members. For these reasons, a free-market would tend towards the elimination of irrational discrimination, and is thus another argument for establishing a free-market society. It is thus, consequently, not a valid reason to doubt the social mobility inherent in a free-market society.                           

2. The ‘Poverty Trap’

            According to the ‘Poverty Trap’ theory, the poorest members of society are stuck in an environment where their poverty is perpetuated indefinitely. This is allegedly because poorer families will tend to have more problems (single parents, drug abuse, parent in jail, etc…) and because the living environment of poorer areas of cities is not conducive to success, with its gangs and lack of a supportive environment for children. These factors will, according to the theory, combine to make it extremely difficult for a child in these circumstances to lift themselves out of poverty, unless the government steps in and attempts to remedy these conditions, using taxpayer money.

           

           Firstly, this theory, I think, is far too critical of poorer families and poorer areas. Not all poor parents are incapable of providing proper parenting to their children. Far from it, probably many poor parents are just as good if not better at raising their kids than their richer counterparts. Also, not all poor areas are bad environments for children to grow up in. Many are, but it really depends on the culture of the people in question, not on their poverty level.

            

           Secondly, probably the best blow to be struck against the ‘poverty trap’ theory is applied through citing a historical example, where one of the greatest historical ‘poverty traps’ of all time was overcome: this being the ‘Dark Ages’. In the 9^th and 10^th centuries in medieval Western Europe, the vast majority of the population was stuck in one of the worst ‘poverty traps’ you could imagine. The medieval serf was legally bound to his land. He lived near subsistence levels and most of whatever surplus he could produce was turned over to his rapacious feudal lord. He grew up in an intellectual environment characterized by superstition and fatalism. He was constantly threatened by physical invasion of his land, assault, and violent death. Diseases ran rampant and killed vast swathes of the population when they hit.

           

           If we took the ‘poverty trap’ theory seriously, we should be forced to declare that the Dark Ages should have been the end of human material progress, with the vast majority of the population stuck in one of the worst ‘poverty traps’ imaginable, prevented by their poverty from advancing. But this is not what happened. In fact, in the 11^th  and the 12^th centuries, a remarkable thing happened: some of the bolder serfs escaped from their feudal, rural bondage and congregated with others like them. They joined together to build walls to protect themselves from rapacious noblemen, and worked primarily as merchants and craftsmen to make a living by producing and exchanging goods with one another, with rural noblemen and some peasants, and with other cities of the world. These towns became the dynamic forces in the medieval economy, and ushered in what is known as the High Middle Ages, where culture and material prosperity advanced beyond the penury and ignorance of the Dark Ages. Many city dwellers, descendants of those bold runaway serfs, became quite prosperous in this process, showing that no matter how bad, every ‘poverty trap’ can be broken if one has the courage and wits to do so.

            

           This, and many other historical examples of breaking ‘poverty traps’, along with the general discussion of social mobility presented above, suggests that while the ‘poverty trap’ is not an invalid concept, it is a trap that definitely can be escaped, especially in a dynamic free-market economy characterized by greater opportunities and general material prosperity.

3. Lack of Educational Opportunities

When the denier of free-market social mobility is presented with these historical examples of breaking ‘poverty traps’ and other ‘rags to riches’ stories, a common strategy is to say something like: ‘Well, that was in the past, in simpler times. Now, in the modern world with complicated modern technology, education is the key to economic success, and clearly the rich have more educational opportunities than the poor. Thus, the government must establish equality of opportunity by providing free education to the poor, or all social mobility will be stopped in its tracks.’

            

           In response, firstly, I will admit that there is no such thing as “equality of opportunity” in a free market system. As I mentioned above, some individuals will have advantages over others due to the fact that their parents were able to amass more resources by serving the consumers  more efficiently, but this is all part of the incentive system of the free market. That being said though, the importance and class rigidifying aspects of education in a free market have, I think, been overstated.

Firstly, many successful people did not attain their success because they had a certain degree or certification, but succeeded because they had the brains to be able to serve the consumers in a more efficient way than their competitors. This will be especially true in a free market, where professional associations and unions will not be permitted to use force to restrict entry into a profession and where it will be easier, due to less taxes, licences, and regulations, for small upstart companies/individuals to compete with bigger established companies/individuals.

Secondly, education is an investment where a sufficient return is expected, just like for starting a business, and for this investment, like for starting a business, loaned funds will be forthcoming if the creditor believes that the investment is a good one. Thus, if having a good education is really as important for making it in the free market as leftists generally claim it is, then financial institutions, and perhaps even the educational institutions themselves, should be happy to give out loans to students, in the expectation that their future incomes, with the education, will be high enough to enable paying back the loan with interest.

Thirdly, in a free market the price of education will go down from what it is currently. At the post-secondary level, without the government giving guaranteed student loans, the universities will be forced to attract students based on quality and price, and they will compete with each other in this regard, instead of inflating tuition fees because they know that the government will almost always enable students to pay them. At the primary/secondary level, in the absence of public schools, not only will the tax money used to pay for them be returned to the citizens, but in their absence there will grow a wider variety of private schools at different price levels, instead of just expensive ones for rich kids whose parents don’t want them to go to public school. Private tutors too could even provide different levels of education for a wide range of prices in a free market for education.

Fourthly, if the government is subsidizing education or even operating schools, it must of necessity decide what is taught and what is not, thus creating conflicts between parents and not supporting the teaching of certain views in schools, something that the flexibility of the free market would quickly solve. 

All that being said, I do recognize that basic literacy and numeracy is a vital necessity in our society, but if someone cannot even afford to give their children this kind of basic education, they are probably a good candidate for the minimal social safety net of the kind I have expressed support for elsewhere, which will provide basic primary education for children. As with welfare generally, there is no need to strangle the education market for the relatively minor problem (in a prosperous free market society), of children whose parents can’t afford to give them the most basic level of education.

            

            Thus, while of course not achieving the impossible ideal of ‘equality of opportunity’, the free-market system, with its dynamism and emphasis on merit in serving the consumers, will not resemble a rigid caste society, where the rich stay rich and the poor stay poor. We have seen that discrimination, poverty traps, and lack of educational opportunities will not present serious problems for social mobility in a prosperous free-market society.         

                 

                      

The Government Bailout of AIG: Why I oppose it and those like it.

           I have been asked why I still opposed the bailout of American Insurance Group (AIG) in 2008 even though it now seems as if the government has made all of the money they ‘invested’ back. I shall endeavour to respond in this post.

           Essentially, the key question that has to be asked when determining whether a seemingly good government ‘investment’ was in fact good is: did the government use its ability to coercively intervene in the economy in order to significantly favour the company it was ‘invested’ in? If it did, it is not fair to compare the return on the government’s ‘investment’ to the investments of private actors, because the government essentially used its power to redistribute wealth from others in favour of the enterprises it has invested in, something that private actors are, thank goodness, not allowed to do. In the case of AIG, the answer to this question is a clear ‘yes’, but the government’s way of doing so was a bit subtle.

           The immediate cause of AIG’s 2008 crisis situation was when credit rating agencies downgraded AIG’s creditworthiness rating because of continuing losses it was making on subprime mortgage-backed securities, which AIG had valued 1.7 to 2 times higher than the recently-bankrupt Lehman Brothers had. This, understandably, weakened investor confidence in AIG, leading to a dramatic drop in their stock price. Ownership of these overvalued mortgage-backed securities, and other ‘toxic’ assets, was what put AIG and many other big financial firms in such a precarious financial position, which came to a head when, due to the bursting of the housing bubble, market participants started valuing these assets more realistically, at far lower levels than their book values. Supposedly in order to avert a serious financial crisis, it was at this point that the Federal Reserve, the central bank of the US, started engaging in unorthodox monetary policy manoeuvres: they started giving banks and financial companies freshly-created cash in exchange for the ‘toxic’ assets these private companies held. To be more precise, between March 2009 and August 2010, the Fed purchased approximately $1.1 trillion (book value) of mortgage-backed securities from the banking/financial system.

           Needless to say, these policies were highly inflationary moves. Monetary inflation is a means of redistributing resources: resources are redistributed from those who will receive the newly-created money late in its flow through the economy, or not at all for those on fixed incomes, to those who receive the newly-created money relatively early on in its flow through the economy. In this case, the most obvious and greatest beneficiaries of these inflationary policies are the companies holding the toxic assets that the central bank is now willing to buy at an artificially high, by market standards, cash value. In this sense, AIG benefitted greatly from the Fed’s policies. Since the mortgage-backed securities are still toxic assets, that is, holders of the mortgages are not more likely to pay them now than they were before the 2008 crisis due to falling home prices and generally bad economic times in the US, we see that only through the Fed’s extraordinary inflationary measures to save the financial system was AIG itself saved.

           Besides this, one major purpose of inflationary monetary policy is to push the market interest rate artificially below what would have prevailed in a non-inflationary free-market. These artificially low interest rates without a doubt were beneficial to AIG, it made ample use of this cheap credit to bridge the gap between its crisis situation and its recent return to financial stability. The downside of these artificially low interest rates is that they set the stage for another boom and bust cycle in the future. Thus, the government (the Fed is for most intents and purposes an agency of the government), did in fact coercively intervene in the economic order to secure its ‘investment’ in AIG, at the expense of late receivers of the newly-created money and all those who will suffer in the future boom-bust cycle that its monetary policies have set the stage for.

           So much for the particular case of AIG. When considering government bailouts of ailing firms in a financial crisis in general, several more pernicious effects can be identified:

           1. Moral Hazard: The big financial firms took on a large amount of risk in the boom period before the 2008 crash, and they profited in accordance with those risks. When the bust came though and the risky investments turned sour, the government stepped in and bailed these firms out of their mess, thus socializing a substantial portion of their losses. If economic actors believe that the government will take similar actions in the future (and it would probably make sense to do so given the almost unanimous, bi-partisan support for the allegedly ‘necessary’ 2008 bailouts), a situation is created where actors expect profits to be private, but losses to be socialized. This will create perverse incentives favouring the taking on of excessive amounts of risk and debt amongst many economic actors. This will tend to result in an above-normal rate of capital misallocation, which makes poorer all members of the market society. In a situation which promotes these perverse incentives, calls for tighter government regulations on these actors’ economic activities make some sense. However, at best, these regulations will be cumbersome, reactive, insufficiently flexible, costly, and generally inferior substitutes for the market’s natural regulation of economic activities through the mechanisms of profit and loss. At worst, regulators will be ‘captured’ by the lobbying efforts and the political influence of the firms they are trying to regulate, and the regulations will become means of favouring one group of firms (usually bigger, more well-established ones) at the expense of other firms in the industry and the consumers in general.

2. The government forces a certain level of risk on the taxpayers: Even in a bailout situation where the government has not intervened elsewhere in order to favour the firms it has ‘invested’ in, it is still taking on a certain level of risk with its investment. The government doesn’t typically save up piles of money in order to invest though, so in most cases, it is the taxpayers (or inflation victims) who are actually on the hook if the investment turns sour. When investing their funds through voluntary, free-market means, people will either invest the money themselves or will hire an expert to do it for them. In either case, directly or indirectly, the owner of the invested sum will consider how much risk he is willing to take on, with riskier investments usually promising higher returns if they work out. When the government takes the taxpayers’ money and ‘invests’ it for them, the taxpayers have, for all intents and purposes, no influence over the amount of risk the government takes on using their funds (To the best of my knowledge, no election campaign has ever concerned itself with such technical, financial issues, and in a ‘crisis’ situation like in 2008, there is no intervening election anyway). Some people are more risk averse, some less so, but the government’s ‘investing’ does not take these subjective preferences of the people whose funds it is handling into sufficient account.

3. Negative Political Effects: the ‘Occupy Wall Street’ syndrome: The government bailing out big private firms with ‘public’ money lends itself to the socialist theory that the market, or ‘capitalist’ system, is a system where ‘the rich’ constantly exploit ‘the poor’, enriching themselves at the expense of the downtrodden. This is a fairly accurate description of a government bailout, but has nothing to do with a free-market unhampered by government interference. Unfortunately, most leftist political activists are too ignorant and intellectually shallow to recognize this distinction, so they just attribute all of the negative effects of a system of government interventionism, or ‘crony capitalism’, to ‘capitalism’ in general, including the free-market variety. They don’t distinguish between the rich who have made their money primarily through government favours, a form of exploitation, and those who made it by serving the consumers well. Radical policies, sure to do more harm than good, are proposed and are given credence because of this confusion, occasioned by bailout politics.

4. Theoretical reasons why the government will, on average, be a worse investor than private ones: Whenever the government is determining how to allocate money, there is always the distinct possibility of political considerations affecting their decisions. Various governments’ investments in ‘green energy’, an industry of questionable market value but of great political value, illustrate this point, to say nothing of more sinister political considerations such as whether potential investment candidates are friendly with the government or political party in power. Also, the officials responsible for government investments will tend to have less personally riding on the monetary outcome of these investments than private investors, where their own monetary interests if independent or the size of their client base if a professional is directly related to the performance of their investments.   

5. Under a regime where bailouts are expected, a higher premium is placed on political connections: The more discretionary benefits the government is capable of dispensing, the more of a premium is placed on establishing political connections if you are a private firm. Money that could have been spent developing better and cheaper products for the consumers is increasingly spent on lobbying and campaign contributions. This is important in an interventionist regime where the possibility of receiving a bailout in times of trouble is high for those with political favour: political influence can make the difference between being the ones bailed out versus being the ones asking “where’s my bailout?” in a crisis.

           Finally, we should ask the question: what is so bad about big firms who have made bad investments in the past going bankrupt when these bad investments are revealed as such anyway? The bust is the corrective phase of the boom-bust cycle, it is when malinvestments made during the boom are revealed as such and thus must be revalued by the market to coincide more closely with economic realities. When a firm goes bankrupt in a crisis, its assets do not disappear from the face of the earth, they are just revalued and taken over by the creditors of the firm, who tend to be intent on deploying these assets to their most value-productive uses in order to reap a return in the new economic climate. In AIG’s case, there are sophisticated liquidation procedures in place for when insurance companies go bankrupt, in which policy holders are given high priority claims to the bankrupt company’s assets in order to keep their policies going and to collect outstanding claims. Also, claim guarantee associations are organized in each state in the US that covers a certain amount of a life insurance or health insurance claim in the eventuality of liquidation of the insurance company. Besides the moral hazard effects outlined above associated with rewarding improvident firms with bailouts, trying to artificially prop up the prices of ‘toxic’ assets through government bailout policies and central bank unorthodox monetary policies can only delay the necessary corrective adjustments and prolong the stagnation of the bust period.   

           Thus, though the bailout of AIG was seemingly costless, in fact it was anything but, and the relative ‘success’ of the government’s ‘investment’ in AIG cannot be assessed in isolation, without taking the costs of the government’s economic interventions in favour of firms like AIG and of bailouts in general into account. This is why I don’t support government bailouts of private firms.

                   

Dynamic Versus Static Political Ideals

            Any normative political theorist must have some kind of political ideal in mind when he criticizes the status quo or suggests reforms. This ideal must ultimately be based on one of three overarching political principles, and then qualifications or amendments are then added. These three basic principles are: freedom, elitism, or egalitarianism.

            

           The holder of the political principle of freedom maintains that in most cases, individuals, by pursuing their own ends, and exchanging and cooperating with one another to pursue those ends, spontaneously generate a good social order. Each individual owns themselves and the fruits of their labour or goods received through the voluntary exchanges that they make, hence the institution of private property. The free-market is seen as economically preferable to socialism, and hence most government interventions with the free-market order are seen as counter-productive. Furthermore, individuals are seen as their own ends, not just means to some ‘collective’ end, and hence the individual freedom to pursue individually chosen ends is considered as a vital good to be pursued in its own right.

            

           The holder of the political principle of elitism maintains that some individuals, by some kind of alleged superiority, whether it is strength, intelligence, race, birth, or anything else, should have special privileges that other individuals do not. Because of their superiority, these individuals are allowed to rule over the ‘inferior’ individuals, whether for their alleged own good or for the good of the ruling class, whose interests are deemed more important. 

            

           The holder of the political principle of egalitarianism maintains that the mere fact of being born entitles the individual to material equality with the rest of humanity. Individuals do not own themselves, each individual is owned by all other individuals. If someone accumulates more material wealth than the rest of his fellow humans, the surplus should be confiscated and distributed equally amongst all others.

            

           A static political ideal is the ideal political arrangement of a thinker, which would be realized if he became an omnipotent dictator with the power of changing political arrangements instantaneously. Usually, these political ideals will be an eclectic mixture of the three ‘extremist’ political principles enumerated above. The mere fact that the thinker has a concrete political ideal (a set of things that governments should be doing) usually makes him a bit of an elitist. The whole exercise assumes that the thinker, and those who think like him, know what is better for their fellow men more than they themselves do through their voluntary actions, or else political action, ie. coercion, would not be necessary to achieve the outcome. The egalitarian or elitist side comes out whenever the thinker suggests that resources be taken from one group in order to benefit a group that ‘needs it more’. If for instance, the thinker believes the government should fund the arts, this is an elitist policy because he implies that the tastes of certain people, ie. those who appreciate the arts, are more important than those who do not, and these ‘superior’ people should have the privilege of subsidizing their activities through the forced contributions of those ‘inferior’ people who do not see the value of the arts. If the thinker believes that the government should take from richer citizens in order to help out poorer citizens, this is the egalitarian side. But, unless the political ideal is a completely totalitarian socialist dictatorship, the freedom principle is still present in the political ideal.

            

           Allow me to lay out my static political ideal as an example. In most things, I am a libertarian and adhere to the freedom principle. I think that due to the subjectivism of tastes and the elegance and effectiveness of the free-market mechanism in generating material prosperity, freedom is the most effective way of satisfying the most people’s desires. However, I am not an anarchist but a minarchist, I believe in a minimal role for government, the social mechanism of coercion and compulsion. I suspect, though I do not know for sure, that a minimal, democratic government, coercing people for funds in order to provide their monopolistic law and security functions, would mean less coercion than anarchism, where everyone is free to organize themselves into a defence (or offence!) agency and collect funds from willing contributors. I suspect that some of these agencies might become aggressive and try to enrich themselves through coercion like bandits. Also, without a monopoly of law, there could be many different variants of law, not all of which would accord with individual freedom (shari’a law for example), and there would be no monopolistic agency powerful enough to ensure that individual freedom was always respected. Thus, I estimate, though I have no concrete proof, that the public coercion of a consistent minarchism would be less than the private coercion of anarchism.

            

           Moving on to other deviations from the freedom principle, in order to appease bleeding hearts, to prevent people from citing ‘necessity’ as an excuse for breaking the law, and to give people a basic guarantee that his fellow men will not let him die due to poverty, I would allow for a very minimal social safety net for those who simply could not make it in the market economy and whom private charity had not provided for. Another deviation: in order to keep spendthrift people from abusing this social safety net, and in order to ensure that the capital supply necessary for economic growth does not fall too low, I would institute a modest forced savings plan, where individuals would have to set aside, say, 10% of their income as savings, to be invested as they want but to be spent only for medical emergencies, educational investments, or for retirement. Also, in order to ensure that costly, but very valuable, technological innovation continues, I would allow for an intellectual property system of patents and copyrights, with a modest length so as not to stultify innovation and cripple the economy with monopolies, to help actors reap more of the, otherwise external, benefits of technological innovation. Also, if significant global warming and the carbon emissions necessary for it to create serious consequences could be proven in a court of law, I would allow some kind of governmental carbon cap-and-trade system in order to internalize this negative externality. Finally, for my proposed air quality associations, water system associations, and road owner associations who would own these resources, some minimal governmental functions and different property rules may have to be assigned to them.

            

            The static political ideal outlined above is much closer to the pure principle of freedom than those of non-libertarian thinkers. Nevertheless, I did borrow from the principles of both egalitarianism and elitism, however modestly. The minimal social safety net is clearly an egalitarian program: individuals, by the mere fact of being born, are being given a privileged claim to the earned resources of others, in this case, the enforceable claim to be given the resources necessary to live without having to work for them. The other deviations from freedom have elitist elements: I, the thinker, think that people want a certain thing that they have not demonstrated on the market that they want (more capital goods, more technology, a certain size and composition of water and road holding entities) and I endorse using coercion in order to divert resources from what they otherwise would have been spent on to these things. That my paternalism is substantially more modest than that of most political thinkers is a question of degree, not principle.

            

           This brings me to why I call it a static political ideal: because it assumes that this political arrangement, regardless of the fundamental political principles underlying it, will remain the same over time. In the real world of politics, this is not the case. For example, rather than abolishing the Poor Law in England in 1832 (an early form of welfarism), the largely free-market economists and policy makers decided to reform it instead, making it more like the minimal social safety net envisioned in my static political ideal above, where instead of being given payments (outdoor relief), welfare recipients would have to live and work in a workhouse under barracks like conditions, so as to make being on welfare uncomfortable and to try to ‘reform’ the people in the workhouse to make them productive citizens. This, because of the dynamic political process, did not last long though. The egalitarian principle underlying the poor law was stretched further and further in this area until Britain was saddled with a bloated welfare state so characteristic of the modern western world. The same can be said of the United States Income tax, adopted in 1913 at a bottom bracket rate of 1%, top bracket rate of 7%, which reached 20% bottom bracket and 91% top bracket in 1954. Certainly those who were debating the income tax in 1913 did not envision it going up to this extent, nor did the framers of the 1832 Poor Law reforms envisage the modern welfare state, nor did the politicians who advocated modest financial help to schools for poor children envisage mandatory, universal public education. The point is that if a principle can justify an intervention of one magnitude, it can usually be stretched to justify an intervention of a higher magnitude as well.

            

           Thus, as contrasted with the static political ideal, there is also the dynamic political ideal. Here, the political thinker must consider the general principles underlying his political ideal, and whether those principles could be used to justify other political arrangements of which he would not approve. In my case, my modest proposals for a deviation from the freedom principle imply that I do not entirely dismiss the egalitarian principle or the elitist principle, so what is to stop other thinkers or political actors from just pushing the latter two principles a bit further? Why not a higher forced savings rate? Why not direct subsidies of technology? Why not take-over investment choices, because short-sighted people might not invest their capital properly? Why don’t we just spend a little bit more on our social safety net to make it a bit more humane?    

            

           In order to signify that I, as a political thinker, am against these extensions, it is possible that as my dynamic political ideal, I may have to just forget about deviations from the freedom principle and just embrace and defend that principle wholeheartedly. For I think that of the pure principles, the freedom principle is far and away the best and leads to prosperity and a dynamic society, whereas the other two lead to slavery, stagnation, and penury. Ludwig von Mises grappled with this issue. He posited that it might not be such a bad thing if the advertising of products whose advertised benefits could not be substantiated by the natural sciences or the consumption of harmful drugs could beneficially be banned. But, in both cases he quickly went on to say that “freedom is indivisible”, and that once the government starts getting in the business of being a truth commission and regulating what people ingest, the extent of the subsequent tyranny that could result would be virtually endless. Largely for this reason, Murray Rothbard and his modern libertarian followers have proclaimed the principle of freedom absolutely, even to the point of advocating for the total elimination of coercive governments, or anarchism. I think, along with Mises though, that a very limited government, bound by strict rules to stick to defending person and property and that alone, and constitutionally bound by revenue caps, could sustain the freedom principle just as well, if not better, than anarchism so I would advocate consistent minarchism of this kind as my dynamic political ideal.

            

           For my part, I think that it is valuable to have both a static and a dynamic political ideal. This allows the political theorist to more effectively isolate the reasons why he advocates certain measures. Thus, when the leftist accuses the libertarian thinker of not caring for the poor, the libertarian thinker, if his static political ideal involves a minimal social safety net, can defend himself with this position, but he can also explain why it is a dangerous principle that, given the history of such things, would probably balloon into some kind of ultra-coercive and redistributionist welfare state.     

The Present 'Social Contract'

The Present ‘Social Contract’

            One idea that has been bandied about by political philosophers is the idea of the ‘social contract’, a contract that our ancestors allegedly entered into with the ancestors of modern governments, supposedly binding on future generations, giving their consent to be governed as we are today. Let us, for the moment, take this far-fetched notion seriously, and draft a ‘social contract’ that would be able to justify what modern governments currently do. I will leave it to the reader to judge whether such a contract would be valid according to the normal standards of contract law and even if it were, whether the reader would ever sign such a thing.

The Social Contract

I, Subject A, the undersigned, do hereby agree to the following:

1. Government A may take as much money or property from me as they see fit, as payment for the services that they provide.

2. Government A may compel me to anything they want me to do, or prohibit me from doing anything they do not want me to do.

3. This contract is irrevocable and I agree never to seek to make any other such contract with any other government whatsoever.

4. This contract is binding on all of my future descendants living in the specified geographical area claimed by Government A.

5. If I or my descendants should disobey or resist Government A as it uses the powers given to it in clauses 1 and 2, Government A may punish me or my descendants with fines, imprisonment, or, as a last resort, death.

I, Government A, the undersigned, do hereby agree to the following:

1. I will endeavour to protect Subject A and the property that I have not taken away from him from foreign aggression and aggression by domestic lawbreakers. I offer no guarantees pertaining to my success in these endeavours, but hey, I will do my best, as long as I'm not too busy gathering tribute or cracking down on victimless ‘crimes’.

2. I may, from time to time, use the money I levy from you to provide you with additional ‘services’. Some of these services I may force you to use, I might not allow anyone else to provide these services, and I make no promises about the quality of the services provided.

3. I agree to hold regular elections every 4 years, where Subject A and all of my other subjects can vote, the majority deciding the issue, on who is to fill certain posts in my governing structure. Once voted into office, these personnel will be imbued with the powers given to Government A in clauses 1 and 2 in Subject A’s contractual agreement above, and cannot be recalled until the next election.

(Note: By the way, if you, Subject A, should choose not to sign this contract, I, Government A, will imprison you until you do or I will kill you.)

            I don’t know about you, but I, in my position as a subject, certainly would never voluntarily sign this contract, and I doubt my ancestors would have either. If I was forced to sign it through the threat of imprisonment or death, I would not consider the contract legally or morally binding even for myself, much less for future generations who had no say in the matter whatsoever.

            

           In order to persuade me to sign any ‘social contract’ of this nature, the powers given to Government A in clause 1 and 2 of Subject A’s contractual agreement would have to be severely limited, limits not subject to revision without a full renegotiation of the contract. I would want clause 1 limited to taking, say, only 10%, at most, of each subject’s annual income, and clause 2 limited to only prohibiting things that physically damage other subjects’ persons or private property without their consent.