flinthills

Mussolini is Smiling

Several oil company leaders have been summoned to Washington to appear today before the political leadership.  They will be asked to explain what they intend to do with their "windfall" profits.

Think on that for just a second. 

Let's say you recently got a bonus at work.  You receive a summons in the mail from your city council to appear and explain to them what you intend to do with that "windfall" income.  I know what my answer would be.  "Whatever the heck I dang well please."  If I even bothered to show up at all.

Fascism (also called Corporatism) was all the rage in the '20s and '30s -- even Winston Churchill was fawning over Mussolini's economic prescriptions.  At root it is the exact opposite of Classical Liberalism and Enlightenment traditions.  In Fascism, the individual has not rights, only duties.  He lives to serve the State.  In this view, what you earn is not yours -- it is the State's.  Anything you keep is a gift of the State.  It is therefore quite reasonable for the State to ask you what you intend to do with its money.

The Declaration of Independence and the U.S. Constitution were written by students of the Enlightenment who fervently believed in the Classical Liberal ideals -- that individuals have certain unalienable rights which the State cannot violate.  They had hoped to protect the individual from ever-encroaching government.  The State exists simply to protect the rights of its individuals, not the other way around. 

You should be outraged.  You should do something about it.  Speak up.  Send a letter to you Representative.  Vote these guys out of office if they keep it up. 

It might be fun to watch Big Oil billionaires on the hot seat.  But just think for a second of the consequences.  It could be you next at an upcoming city council meeting.  It's not as big a leap as you might think.

Shooting the Messenger

Here's my letter to the editors of the Wichita Eagle, responding to the cries for price caps on gasoline... the printed opening got hacked up, but the remainder was left in tact... This is the original that was sent in:

Dear Editor:

Not many people take the time to study and understand the basic principles of economics.  That's okay, as many find economics to be boring and difficult.  Unfortunately this doesn't stop these same people from offering economic advice.

For instance, someone in these pages recently suggested we’d be better off if the government would simply mandate a $1-per-gallon gasoline price and reimburse retailers for any amount over a dollar.  Ask yourself: if this is the key to economic nirvana, why $1?  Why not make it free? 

The basic laws of economics have been established and recognized for over two hundred years.  They aren’t rendered optional or obsolete just because we might be unaware of  (or dislike) them. This well-intentioned reader’s proposal is no exception. 

Gasoline is expensive because it is scarce.  Tragically, hurricanes have made it scarcer still.  High prices are simply communicating that reality.  You can shoot the messenger (price), but it doesn’t change the message (scarcity).

Attempting to turn meager rations into abundant supply by controlling the price is like plunging a thermometer into a bucket of ice to cool off a hot summer day.  It doesn’t work that way, no matter how good your intentions.

Being Taught by the Students

In today's Wall Street Journal there is an article about Angela Merkel (subscription required), who is the current favorite in the upcoming German elections.  It highlights her years behind the iron curtain in East Germany where she had many experiences that "sharpened her political views":

"... Ms. Merkel ... became convinced that the overbearing East German state had caused a decay of society by undermining individual responsibility."

I have a good friend who lives near Budapest and studied economics at Karl Marx University when she lived behind the iron curtain.  She taught me a very simple game to play with people to teach them quickly and powerfully the ability of free trade to create real value. 

These are but two of many hundreds, if not thousands, of similar stories about post-east-bloc free-market / free-society advocates.  They've taught me more than I will ever teach them.

I suppose fish are as unaware of the existence of water as we are of air... or of the benefits of living in a free society.  It's unfortunate that it takes people from communist societies to teach us how capitalism works and why it's better than the alternatives.  But perhaps those who have experienced the utter hopelessness and destitution of living under communist / totalitarian rule have the first-hand knowledge necessary to open our eyes to the freedoms and wealth we enjoy.

We're lucky they speak up.  We're like the frog who has been placed in a pot of cool water on a stove, with the heat slowly being turned up... Had it been boiling to start he would have jumped out immediately.  But the gradual increase lulls him towards his demise. 

Are we really that different from the East Germans anymore?  Look at the learned helplessness of our welfare state, our knee-jerk reaction that the government should step in whenever there's a problem.  The class-action suits against everything from cigarettes to fast-food.  Social security, Medicaid, FEMA, public this, public that.  Is there any indvidiual responsibility left anywhere in this country? 

More than 200 years of economic science, expressed in political policy through the classical liberal tradition, exists to lead us towards more freedom, more peace, and more prosperity, but we consistenly ignore it at our increasing peril.  Ludwig von Mises concludes his magnum opus, Human Action, with:

"The body of economic knowledge is an essential element in the structure of human civilization; it is the foundation upon which modern industrialism and all the moral, intellectual, technological, and therapeutical achievements of the last centuries have been built.  It rests with men whether they will make the proper use of the rich treasure with which this knowledge provides them or whether they will leave it unused.  But if they fail to take the best advantage of it and disregard its teachings and warnings, they will not annul economics; they will stamp out society and the human race."

We've been warned so many times, so eloquently...

Katrina Donations

As a libertarian, I firmly believe that personal freedom goes hand-in-hand with personal responsibility.  There is much whining in this world from people trying to get out of sleeping in beds they've made all on their own.  Hitting the skids when circumstances are under your control?  Doing things that have short-term benefits without wanting to incure the long-term costs?  As the saying goes, bad decisions on your part don't constitute an emergency on mine.

But sometimes circumstances are beyond anyone's control, as when lives are completely devastated by the violence of a storm like Katrina.  I suppose we still don't know the extent of her destruction, but what we already know is enough to call it a hugely tragic event for millions of residents in Louisianna, Mississippi, Alabama, and Georgia.  That does constitute an emergency on our part. 

These unfortunate souls will need help rebuilding their lives.  Please consider a donation to the Salvation Army or the American Red Cross. 

Gas Prices ... Markets Work

Katrina's devestation has created the very real possibility for $3-$5 per gallon gasoline prices.   When this happens there will most certainly be an uproar.  The phrase "price gouging" will be on everyone's lips. 

So, dear reader and good citizen, it is imperative that you speak up when you hear it.  The market is at work, allocating scarce resources to their highest valued uses.  There is no better, fairer, or more efficient solution.

High prices will be a vital signal to all of us that gasoline is getting scarce -- so you'd better really need it, or else you should conserve.  No one -- not the President, not your Senator, nor anyone else --  can wave a wand and "poof" problem solved.  Gasoline is going to be tough to come by for a while. 

It's not "gouging" when prices are freely set by voluntarily contracting parties.  Absent collusion and other illegal acts, a price simply reflects the current state of supply and demand.  In times of abundence, suppliers compete with suppliers to offer product to consumers, driving prices lower.  In times of shortage, consumers compete with other consumers to buy from suppliers, driving prices higher in the process.  The resulting price, increasing or decreasing, is just a messenger -- shooting it doesn't get rid of the problem of scarcity any more than plunging a thermometer into an ice bucket makes a hot summer day cooler. 

But shooting the messenger definitely kills any connection to reality, which removes the essential knowledge and incentives for correct behavior.  Without prices and the mechanism of profits and losses, we lose the ability to efficiently coordinate solutions to complex problems.  People don't conserve, they don't get inspired to find alternatives and substitutes, they don't invest in fuels research or ways to improve the productivity of refining processes.  In short, disaster ensues. 

So speak up and present the sane perspective.  If players (suppliers or consumers) are behaving illegally, then fine - they deserve whatever they have coming.  But in times like this it is highly unlikely that this is the primary source of high prices...  Ockham's Razor says it's much more likely that the source of the trouble is scarcity.

Mises on Social Security

One response I often get in friendly banter regarding my position on getting rid of the social security system is that the average person can't be trusted to save on his or her own.  In part I agree, because I believe U.S. policy, legislation, etc. has created the very conditions that make it so...  a nanny state where the individuals are raised to be perpetual children.  So think about that...  Ludwig Von Mises, in Human Action, painted the picture of what this leads to:

"Whether such a system of social security is a good or bad policy is essentially a political problem.  One may try to justify it by declaring that the wage earners lack the insight and the moral strength to provide spontaneously for their own future.  But then it is not easy to silence the voices of those who ask whether it is not paradoxical to entrust the nation's welfare to the decisions of voters whom the law itself considers incapable of managing their own affairs; whether it is not absurd to make those people supreme in the conduct of government who are manifestly in need of a guardian to prevent them from spending their own income foolishly.  Is it reasonable to assign to wards the right to elect their guardians?  It is no accident that Germany, the country that inaugurated the social security system, was the cradle of both varieties of modern disparagement of democracy, the Marxian as well as the non-Marxian."

In other words, this position leads inevitably to totalitarian rule in one form (socialism) or another (fascism).  If you hold the position that people in general are too stupid or lack the will to provide for their own future in absence of government coercion, you might want to think about your response to this rather compelling, historically substantiated, and well reasoned argument...

On the other hand you could take the position that most people can manage their own lives just fine and allow everyone to live and let live regarding their preferences for savings v. spending, and live with the consequences of their decisions.  There will be some grasshoppers among the ants.  In cases where they were simply irresponsible or foolish, they make great examples for the rest of society as to what happens when you don't save for your retirement.

You can then craft policy for the small minority who are simply unable to care for themselves, provide for a future, etc.  The destitute will always be among us -- they require our care.  But we shouldn't impose policies that apply to this small group of unfortunates on the majority who are perfectly capable of living their own lives.  If we expect people to live like responsible adults, and our laws and social programs reflect that, then that's what we'll get: responsible adults. 

Herman Cain

Until this weekend I didn't know who Herman Cain was.  I met him at a conference where he was giving a keynote.  At the dinner before his speech I was seated next to his chief of staff who was giving me the 411 after seeing I had no clue. 

I expected her enthusiasm -- after all, she is his chief of staff -- and so discounted it all as, "oh, another politician."  After listening to this dynamic, articulate, and inspiration speaker, I turned to her and simply said, "now I know why you went to work for him." 

He's written a book titled, "They Think You're Stupid," and you can check out his web site at www.hermancain.com.  His radio program (The Bottom Line) can be accessed using that website, where he keeps the most recent 10 programs archived. 

I am a bit concerned regarding his stance and rhetoric on foreign investment, but overall his perspective is refreshing.  I'm fortunate to have met him - and his chief of staff.

Marxism Still a Continuing Argument?!

In the "it would be funny if it weren't so sad" category, consider this news item from Britain's Sunday Times:

"His influence may have waned on the global political stage, but Karl Marx seems certain to be voted the world’s greatest philosopher in a new poll.

[...] 

Wheen said: 'He’s far more wide-ranging than the others on the list. He was not just a philosopher but was also very much involved in politics, economics and history. Marxism is also still a continuing argument, so that helps to give him credibility and relevance.' "

[...]

'Actually, Marx himself was rather buried, as it were, by communist leaders such as Stalin and Kim Il-sung during much of the 20th century,” said Wheen. “It is they who discredited communism, but Marx’s own ideas are still very viable and influential' "

Uh huh... Spend a day reading Hayek's "The Use of Knowledge in Society," ... have a conversation with Williams, Roberts, Boudreaux, Sowell, ... there's a lot more.  They'll quickly disabuse you of any pretense to the notion of the communist vision being a possibility in the real world.

Silly Quote of the Week

In a stunning display of ignorance regarding the non-normative laws of economics (as in if you don't believe in gravity, step off a cliff): Republican Sen. Lindsay Graham, joining forces with Democrat Sen. Clinton to protect U.S. manufacturing jobs, says:

"Manufacturing jobs built our great Middle Class and allowed millions of families to live the American dream and create a better life for the children.  That bedrock strength is being eroded [...] we can no longer watch good jobs disappear."

As Joseph Schumpeter (no great friend of free markets) pointed out a long time ago, one cannot escape the gales of creative destruction.   Yes, manufacturing jobs are disappearing, and yes, there is real hardship and pain for some of those who are caught in that cycle.  But that's reality.  Pain and hardship exists and we can use sound public policy to help those who are suffering (like, promoting awareness and providing incentives for voluntary organizations to step in and help out with private funds). 

There's also, on the net balance, more jobs created in this country than are destroyed, as the accompanying chart demonstrates using recent BLS data. 

Here's a thought experiment: you have a nephew who's getting to be 14 or 15 years old and he is trying to figure out what he wants to do with his life -- should he go to college?  What career might he be curious about?  He asks you for advice. Just out of curiosity... would steer him towards manufacturing!!??  An industry that has been in decline since the 1950's??

This kind of thinking leads to subsistence living -- because using it we'd never have developed manufacturing in the first place -- we'd never have been let off of the farm.  We'd still be riding horse-and-buggies. 

I'm sure there are some neo-luddites out there who shiver with delight at the idea.  I'm not one of 'em.  I like my job, my varied career, the myriad of choices that assault me in a grocery store, the challenge of choosing just what kind of car I want to buy next, the ability to get my Starbucks each morning for $1.83 (grande coffee of the day w/ one shot of espresso) no matter where I am in the world (which I like as well). 

Without creative destruction and the free market mechanism (as well as liberty, private property, and rule of law), most of us would not exist today because Malthusian economics would rule the day -- eventually, our population with surpass the earths ability to sustain it -- we'd be more like a rabbit warren than a human civilization.  Rabbits are cute, but  I prefer civilization.

Something to be said for political gridlock...

Saw this article from Forbes (free subscription required) titled, "Stadium Loss is Win-Win." 

"The covered stadium was to have been built on a 30-acre site atop a rail yard owned by the New York Metropolitan Transportation Authority. But if the land could be freed for other purposes, the question was why the stadium was the best use.

[...] What's never explained is why New York needs the city to build on the site. In recent years, developers have grabbed every available site to build. If the rail yards were made available for other uses, developers would build there, too. Not a stadium, but someone would build something." 

I hope a lot of Wichitans read Forbes...