Leading the Revival of Individualism & Self Reliance

Hayek Warned against One-Size-Fits-All Health Care Policies

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What would Hayek say if he was around to see the ongoing fiasco that is Obamacare? Well, for one thing, he probably wouldn’t be surprised, but he would be deeply saddened. And while he could never know the specifics of our country’s progressive strides towards universal health care, he managed to predict the overall situation quite perfectly in the fifth chapter of The Road to Serfdom.

It is impossible to plan for an entire national economy comprised of individual beings. Each has different goals and desires, making one-size-fits-all economic policies unfeasible, to say the least. It’s also an expensive endeavor to attempt.

Yet, the Affordable Care Act sought to do just that. Economics and logic went out the window in favor of the supposed “general welfare” of the American public. So long as the end result was increased–if not universal– health coverage, then the means were rationalized.

And while it was fought by many who had read Hayek and heeded his warnings, Obamacare was approved by both chambers of Congress and was eventually upheld as constitutional by the SCOTUS.

Advocates championed this as a democratic victory. The American people had finally taken control of their health care back from the greedy, capitalist health care sector.

But just as many free market economists had predicted, Obamacare was a complete disaster both economically and democratically. And while many have been shocked by the implications of giving the government so much power over an entire market sector, Hayek warned of these dangers long before Obamacare’s conception.  

The Individual Gets Left Behind

Among other things, Obamacare claimed to know the health care priorities of every single American. From dictating what coverage must be provided by employers to fining individuals for not choosing to buy health insurance, Obamacare took away the ability to choose and replaced it with coercion.

But even worse, it cost the taxpayer $42.6 billion in the fiscal year 2017 alone. So not only did this lead to increased government control over health care, it was also a financial black hole. And it completely neglected the individual consumer by assuming that a small body of experts was better suited to make these intimate decisions in their stead.

But how could they be? Each of these alleged health care experts is incapable of knowing the wants and needs of every single American.

In the chapter fifth chapter of The Road to Serfdom, “Planning and Democracy” Hayek writes:

The point which is so important is the basic fact that it is impossible for any man to survey more than a limited field, to be aware of the urgency of more than a limited number of needs. Whether his interests center round his own physical needs, or whether he takes a warm interest in the welfare of every human being he knows, the ends about which he can be concerned will always be only an infinitesimal fraction of the needs of all men.

And sure enough, health care consumers were mad because they were not getting what they wanted or needed. President Obama’s infamous line, “If you like your plan you can keep your plan,” turned out to be nothing more than rhetoric. In fact many Americans lost their plans altogether, or couldn’t afford to pay the increased premium costs.

Many advocates of state-run health care excused this blunder by suggesting that perhaps this was in the people’s best interest. Maybe their original insurance premiums were insufficient, at least according to the new government standards. Perhaps Obamacare was doing these health care consumers a favor by stripping them of their prior coverage.

But even though the facts were staring every single American in the face, many still believed these “insignificant,” shall we say setbacks, were worth the result of increased national coverage.

And to be fair, there was increased national coverage. Fining or “taxing” citizens for not purchasing health care works as a powerful incentive. But it stifled individualism.

Anyone who dared to speak out against the state’s intervention in the health care industry was quickly made to feel selfish. Clearly, if you weren’t in favor of government interference in health care, you were unconcerned with what happens to those who can’t afford coverage.

Consequences be damned, if the desired end result of increased coverage was eventually obtained, that was all that really mattered.

But opponents of Obamacare are hardly selfish. They just understand that planning for an entire nation is an impossible task. The individual always loses.

As Hayek wrote:

This is the fundamental fact on which the whole philosophy of individualism is based. It does not assume, as is often asserted, that man is egoistic or selfish or ought to be. It merely starts from the indisputable fact that the limits of our powers of imagination make it impossible to include in our scale of values more than a sector of the needs of the whole society, and that, since, strictly speaking, scales of value can exist only in individual minds, nothing but partial scales of values exist – scales which are inevitably different and often inconsistent with each other. It is this recognition of the individual as the ultimate judge of his ends, the belief that as far as possible his own views ought to govern his actions, that forms the essence of the individualist position.

The Problem with Democracy

It is odd that proponents of Obamacare often use the “greater social good” as their excuse since the implementation of a government controlled health care system necessarily leads to a breakdown of social order, or rather, a crackdown on individual liberty.

Hayek understood this far too well. But acknowledging this point was almost unavoidable in Hayek’s time since the world watched in horror as European empires sacrificed the individual in the name of nationalism.

But if it was difficult for Hayek to get this point across to others in his day, even as WWII was unfolding, it is not hard to understand how those in 2017 could easily forget and dismiss these historical lessons. Though this hardly makes it less frustrating.

When opponents of universal health care policies voice concerns over the power Obamacare gives a very small group of people, they are dismissed as hyperbolic and irrational. Clearly, this is what the people wanted, and needed! Those with hesitations should consider the great strides Obamacare has given people. If not for this intervention, the breakdown of the health care system would have resulted in chaos to the consumer. This is the only policy suited to meet the needs of the greatest number of people!

Of course, Hayek spoke to these fallacies too:

The fashionable concentration on democracy as the main value threatened is not without danger. It is largely responsible for the misleading and unfounded belief that, so long as the ultimate source of power is the will of the majority, the power cannot be arbitrary the contrast suggested by this statement is altogether false: it is not the source but the limitation of power which prevents it from being arbitrary.

But this power is absolutely arbitrary and untamable. Obamacare ushered in a new era of increased state control and brokedown constitutional “limitations” by increasing the scope, and thus the role of the federal government in healthcare. The rule of law was demolished, or at least broadened.

Not to mention, procedural rules were broken or bent in order to ensure its passage. “We have to pass it to see what’s in it,” Nancy Pelosi famously said when many members of Congress were enraged to have been given an absurdly long bill and only a short time to actually attempt to read its contents.

But again, Hayek predicted all this too:

And to make it quite clear that a socialist government must not allow itself to be too much fettered by democratic procedure.

And make no mistake, a socialist government is essentially what a post-Obamacare America is. And while Trump has made some rollbacks, the government will continue to encroach on the health care sector, which is precisely why constant vigilance is of the utmost importance. It’s also why everyone should read Hayek.

“The cry for an economic dictator is a characteristic stage in the movement toward planning,” Hayek astutely says. Whenever the people, or perhaps just the congressional leaders who claim to speak on their behalf, assert that economic or social chaos is coming, they often relinquish their sovereignty or do not even realize it has been taken from them until it is already gone.

In theory, democracies are supposed to safeguard the will of the people. And to be sure, democracy on its own is not necessarily negative, or at least it doesn’t have to be according to Hayek.

Hayek ends this chapter by arguing that a democracy, adequately limited in scope can serve as a safeguard to the individual. But unlimited democracies will always be the enemy of individualism. And unfortunately, our real-world experiences with democratic societies have proven to have more of a tendency towards the latter.

As Hayek says:

Democratic control may prevent power from becoming arbitrary, but it does not do so by its mere existence. If democracy resolves on a task which necessarily involves the use of power which cannot be guided by fixed rules, it must become arbitrary.

We Invent New Institutions Every Day. Let The Old Ones Die.

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It’s awfully tough to get rid of institutions.  Institutions are organizations, customs and norms of behavior that mediate between individuals and society in a way that promotes social order and works for everyone. Over time, they decay, and they become corrupted and, eventually, they cease to serve the purpose for which they were conceived.

Our Decaying Institutions

Think of the US Congress, conceived as an expression of representative democracy. Almost no-one today believes that any elected official that sits in Congress represents anything except their own interests and those of the special interest groups that pay for their election and re-election.

Think of banking, conceived as a mechanism to promote economic growth by collecting savings and directing those savings to entrepreneurs who would utilize them in the creation and expansion of productive businesses. Today, banks operate a fraudulent scheme called fractional reserve banking, by means of which one savers’ funds are loaned multiple times, creating an untenable situation where multiple entities have claims on a single deposit. Meanwhile, banks make money trading stocks and bonds and derivatives for their own account, diverting money from the productive economy to the unproductive financial sector.

Or think of education, conceived as a knowledge transfer from generation to generation, to nurture in young minds the accumulated wisdom of society and the intellectual spirit to search for new ideas. Now, education is a government propaganda mill, designed to keep each successive generation mutely compliant with the establishment rules.

The Grounds For Optimism

The temptation is always to be pessimistic, to believe that the decline and decay in institutions is inevitable and irreversible, and leads to social and civilizational collapse. It’s easy to feel that we are living through the decline and fall of the Roman empire.

That’s wrong. Humans, acting entrepreneurially, are creative, ethical and optimistic. They believe in a better future, and they act to try and achieve it. We can do this irrespective of the institutions that now suffocate us, and independently of those of our peers who have been sucked in to the bureaucracy and the redistributionist, regulatory state.

The Emerging New Institutions.

As evidence of the possibilities, think of the new institutions that are emerging in spite of – or perhaps because of – the failure of the existing ones. Some examples include:

Crypto-currency.

Money is the greatest economic institution. It facilitates the exchange economy, in which each of us finds our highest and best role in the division of labor, identifies the best way to serve our fellow man, and trades our specialized product for all the other things we need. We make that trade through the institution of money. Money evolved over time to become more and more convenient and easy to use without losing the trust required to maintain its utility and value. But then governments claimed a monopoly on making and circulating money, and corrupted the institution forever. Money has been de-valued – sometimes becoming effectively worthless, as in the Weimar Republic of yesterday and Venezuela today – and stripped of all integrity. Governments are able to dilute its spending power at will, create more of it whenever they need to spend more, which is every day, and drain money of most of its market-tested integrity. It is now a political artifact of central banks, and a crony capitalist scheme in which those closest to the government (big banks and big financial firms) enjoy the commercial use of newly issued money first, and make above-market profits as a result of their politically favored position.

But now, we are witnessing the emergence of crypto-currencies. These currencies represent a new institution of money, not controlled by governments and central banks, and relying entirely on the market for their value. There is built-in transparency and integrity through cryptography and verification protocols; supply is constrained. The market will be the decider of which currencies are acceptable to people.

The new crypto-money was created by pioneering individuals, who conceived of the idea and the technology, and built the eco-system within which the new money can be exchanged. A new institution has been born.

The Gig Economy.

Employment is an institution. For a long time, we have been instructed that employment is a dependency relationship; we work at the pleasure of the firm that employs us, and no longer. Our earnings are defined by the pay scale the employer attaches to our job or the position we temporarily fill.

A new institution is emerging to replace this dependency-based earnings metaphor: economic self-determination. What the media dismissively call “the gig economy” is, in fact, individuals abandoning dependency and taking control of their own earnings revenue streams. An entrepreneurial individual can map their desired earnings for a long period of time into the future, and navigate their way to those earnings as an independent contractor, designer, artist, project specialist, professional practitioner, or any one of many self-directed and self-resourced choices. They can assemble the requisite skills and knowledge, build a personal brand, join a project team of their choice, and cultivate the relationships to support their life plan. Their earnings are not governed by the whims of a superior in a bureaucracy and they do not have to suffer the indignities of personal reviews and lay-offs. It’s a better institution.

Start-Up Companies.

The institutions we know as firms or corporations can become sclerotic, bureaucratic, defensive and non-innovative. A system for starting new ones was never really institutionalized until the advent of venture capital and the start-up ethos, beginning in post World War II America. Venture capital helps at multiple stages of company development – initial idea generation, the start-up phase, the ramp-up phase, and the monetization or exit phase. It is the start-up phase that has caught the popular imagination. But venture capital is the most productive capital in the economy because of all four phases, generating both big returns for successful investors, and economic growth and improved products and services for society. The institutionalization of the start-up and associated developmental methodologies is one of the great achievements of modern capitalism. It was the result of far-sighted pioneering and tolerance of uncertainty among early pioneers – another example of institutional entrepreneurship.

Home Generation Of Energy.

Our governments want us tied to the energy distribution grid fed by their energy generation plants. Depending on which country you live in, the energy system may be state-owned or state-regulated, but, either way, it is definitely not a free market institution. Energy utilities are government-instituted monopolies; they are insulated from competition and do not practice market pricing.

But no institutions are totally immune to market-driven reform. In the energy field, individual consumers can now take energy generation into their own hands. They can install generators and propane tank systems and, most recently, solar panels for electricity generation. Solar panels will soon take the form of solar roof tiles, so that any hone owner can be their own power plant. And efficient batteries for storage will soften the impact of the daily solar cycle on home energy management.  Home generation of energy becomes its own institution.

Home Schooling And Self-Education.

The state’s near-monopoly on education may be the most dangerously decayed institution. How can a society expect a legion of innovative modernizers to emerge from an education mill designed to suppress original thought? The state should have no role to play in education, and yet its role is completely institutionalized and almost total.

Once again, we can rely on innovators to demonstrate the possibility of alternative approaches, and observe as these innovations advance towards becoming institutions in their own right. Home schooling now has a strong and widespread community. Homeschooling curricula and content are available on the internet, and systems like the Montessori Method are moving towards institutional values based on broad and deep studies and experience.

In higher education and skills education, the self-selected, self-administered course content available on the internet is pervasive and high quality. Continuous self-directed learning is a reality for any lifelong learner who seeks it. The state monopoly is not unbreakable.

Self-Scaling And The Internet Economy.

One of the myths perpetrated by the old institutional environment is that the individual is severely limited in the contribution he or she can make or the impact he or she can have. Only with institutional help can the individual become part of a larger entity with broad reach and real impact in whatever endeavor is being undertaken. One of the words used to capture this restrictive idea is scale – the ability to bring large amounts of resources to bear against a particular opportunity.

Today, scale is downloadable from the internet. The cloud makes huge computing power available to individuals at almost marginal cost. Artificial intelligence augments individual capacity, and cognitive computing connects us to almost unlimited knowledge, data and analytics. Global exchange platforms enable us to collaborate and trade for talent and expertise, and buy and sell merchandize and services, worldwide.  There is no limit to the individual’s access to the power of scale.

Businesses are building environments to support the individual entrepreneur with scalable infrastructure. Ali Baba can almost instantly provide a digital storefront, e-commerce back end, financing, computing, logistics and legal and accounting services for any size business. You can start tomorrow.

Maturing Technologies Result In Superior New Institutions.

These are just a few of the innovative new institutional pathways being laid out today. More will emerge. The maturing technologies of cloud computing, cognitive computing, virtual and augmented reality, artificial intelligence, big data analytics, global exchange and logistics platforms can all provide the individual with self-directed, self-resourcing economic power. If the old institutions decay around us, we need not worry, because the new ones are forming and will serve us much better.

Government Red Tape Forces Nutritionist out of Business

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Heather Kokesch Del Castillo was unsatisfied with her career. Instead of resolving herself to a life of unfulfillment, she took a risk and made the bold decision to live the life of an entrepreneur.

In 2014, she started “Constitutional Nutrition” in California. As a nutritional coach, she provided her clients with one-on-one dietary counseling. She spent years establishing herself in the field and was able to build a profitable business with a large clientele base. But that was before the government shut down her business. 

Now, Heather must endure a bureaucratic circus and pay a large fine before she is legally allowed to reopen her business and earn a living once more.

It sounds almost outrageous to think that the government would stand in the way of an individual’s quest to provide for themselves. But it happens all the time. And in Heather’s case, it happened because she didn’t first obtain an occupational license from the state.

When Heather started Constitutional Nutrition, she was living in California. While California is generally heavily regulated, it does not have any license requirements for aspiring nutritionists. Those wanting to start consulting in that realm are free to do so. They are even free to call themselves “nutritionists.”

But regardless of the law, or lack thereof in the case of California, Heather still went out of her way to get licensed by an independent firm. Though not mandated, it was still an effective way to gain the trust of consumers. Constitutional Nutrition eventually took off and the clients came pouring in. Heather’s risk had paid off and she was able to create value for many willing consumers. But when her husband’s career in the air force resulted in a cross-country move to Florida, Heather’s business was threatened.

Heather did not even think to ask the state of Florida for permission to continue operating her business after she had relocated. Since there were no excessive regulatory obstacles in California, she had no reason to assume there were any elsewhere. She also didn’t think twice about calling herself a nutritionist. That was her profession.

Unfortunately, the state of Florida was not so understanding. In May of 2017, Heather received a cease-and-desist letter from the Florida Department of Health. The letter stated that she was being fined $754 by the Department of Health and demanded that she stop conducting all business related to Constitutional Nutrition immediately. Part of the state’s complaint dealt with her advertising herself as a “nutritionist.” In Florida, you are only allowed to label yourself as such after you have satisfied all the state requirements. 

Heather and her husband were shocked, to say the least. They did not even know this law existed in Florida, yet they were being slapped with a sizeable fine. But even worse, the state was revoking Heather’s right to provide for herself.

In order for Heather to reopen her business, she would have to spend thousands of dollars and several additional years in school. This is the only way she can legally obtain a “license to give nutritional advice” in the state of Florida.

But Heather has already proven herself more than capable in her field. This is evidenced by her consumer base. She was able to build a profitable career and provide a service to many willing consumers. Since being forced to close down, Heather has had to turn away clients eager to exchange money for her services. 

And even though her business was completely legal in one state, Heather is now left fighting for her right to earn a living in court. Joining with Institute for Justice, Heather is taking on the Florida Health Department. But sadly, her case is not unique.

With over 30 percent of the workforce heavily regulated by occupational licensing, many individuals lose their right be entrepreneurs. And in many cases, these licenses and their corresponding regulations are created by those already in a given field. In fact, many of those responsible for crafting these policies are members of trade unions directly impacted by these licensing procedures.

Many of these regulations are adopted in the name of public safety or protecting the consumer. But that is hardly the case. These licenses act instead as barriers to entry by restricting the number of professionals vying for consumers in a given sector. In other words, it restricts true competition.

In order for entrepreneurs to have the freedom to innovate and create value in the marketplace, we need less government regulation. Hopefully, the courts will understand this, and side in favor of Heather Kokesch Del Castillo, so that she may continue earning a living.

Hayek Was Right: Technological Progress Does Not Create Monopolies

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The fourth chapter of Hayek’s The Road to Serfdom deals with the issue of monopolies. Specifically, the myth “that technological changes have made competition impossible in a constantly increasing number of fields and that the only choice left to us is between control of production by private monopolies and direction by the government.”

Hayek explains how this fear that technology necessarily leads to monopolies played out in his own day. As labor saving machines were becoming the norm when it came to mass production, many smaller companies believed that technological innovation made them economically vulnerable. Technology created economies of scale, which favored big companies over small.

However, as Hayek pointed out, these fears neglect a host of circumstances regarding the very nature of monopolies altogether.  

Monopolies by Design

This belief that big companies always have the technological upper hand is simply untrue. As Hayek notes, even economies of scale reach an upper limit.  To be sure, large companies outcompeting the small do not inherently create monopolies. Instead, it is the policy crafted by the state that encourages the elevation of one company over another, as Hayek points out:

The conclusions that the advantage of large-scale production must lead inevitably to the abolition of competition cannot be accepted. It should be noted, moreover, that monopoly is frequently the product of factors other than lower costs….It is attained through collusive agreement and promoted by public policy.

Luckily for Hayek, time has proven his sentiment correct, as we are currently seeing today with the ridesharing economy and traditional taxicabs.

Before the advent of the sharing economy. Taxis enjoyed a near 80-year monopoly over the industry without having to deal with substantial competition. But this monopoly was not by coincidence, it was by design.

Medallion laws, as they have come to be known restrict entry into the traditional “cab” sector. Before a vehicle can be legally used as a taxicab service, it must seek the state’s permission and obtain a medallion.

In most major cities around the country, these laws exist primarily to restrict the number of cabs on the road and thus, control the competition. But what is more interesting about these medallion laws is who its biggest champions have always been: cab companies themselves.

By barring entry into this field, “taxi kings” have avoided any organic incentive to innovate because the need itself has been squashed by government policy. The state, with the help of cab company lobbyists, have crafted these policies so as to avoid any unwanted competition. If someone has a newer and better way to run the industry, they will have a hard time getting these ideas off the ground without paying sometimes as much as one million dollars just for one medallion.

However, this all changed when Uber came around.

Technology Levels the Playing Field

Taxi kings were seen to have the advantage over the cab market largely because they already owned fleets of cabs. These cabs were also already issued medallions by the state. While these factors would at least seemingly deter any new competitors from attempting to join the market, because it gave one industry a financial leg up over another, no one fathomed the rise of ridesharing.

Now, instead of access to technological progress causing large companies to squash their smaller competitors as was feared in Hayek’s day, technology and economies of scale are now actually working in the favor of upstarts.

Uber and Lyft, for example, have completely abolished the need for overhead costs when it comes to maintaining fleets of taxis. This is simply because the companies themselves do not own any physical cars. And since they do not actually own the cars, they have made the argument that the medallion laws do not apply to their model.

Since the sharing economy is based on individuals using property they already own in order to make a living, it negates any need for Uber or Lyft to make a costly investment towards owning a fleet of vehicles or permits in the form of medallions. Allowing them to compete with big cab companies who may have had the upper hand in an outdated market.

This has helped these smaller upstarts break into the market and break up the established taxi cartel. But this doesn’t mean their success has not been met with obstacles from the cab companies.

Technological advances, and especially smartphone technology, have completely restructured the way consumers even think about hailing a cab. Gone are the days when the only alternative to owning a car was standing on busy streets and hoping a cabby will notice you.

Without any real competition, there were no substantial reasons for the cab companies to alter their existing models. But once Uber, Lyft, and other ridesharing companies began rising in popularity, the cab companies got mad and demanded that the government take action. “We can’t compete with this new technology-reliant model,” some claimed, “This is unfair to our business.”

But just as in Hayek’s day, those who complained about technology putting their company’s at an unfair disadvantage only offered solutions that involved government intervention.

Last year, for example, a law was passed in Massachusetts that forced a tariff on the ridesharing industry. The purpose of this tax was to hold the ridesharing industry “accountable” for the cab industry’s inability to innovate and compete with their market competitors. In this case, it was the refusal to incorporate technological advances into their service models.

So instead of competing fairly, the cab companies got away with instituting a tax on their competitors that directly went towards funding the cab company’s apathetic quest to adopt new technology.

This is the reverse from Hayek’s day in that it is now lumbering incumbents scared of the technology savvy little guy instead of the reverse. But, in both cases, the fear-mongering capitalizes on the fear of technology. Both also reiterated the belief that the state should insert itself in the market to make competition more “just.”

And as Hayek has pointed out in every chapter of his book so far, state planning, whether in the form of new taxes or regulatory medallion laws, always serves to inhibit true competition. This is as true now as it was in the mid-1940s.

Be Cautious Of “Harmless” Government Regulations

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Humans are imperfect beings. Try as we may, each of us is subject to some degree of inconsistency in our own thought patterns. Even the greatest champions of liberty who have made invaluable contributions to the study of classical liberalism have fallen prey to error. And while these heroes and geniuses may come to an inconsistent conclusion every now and then, our admiration continues.

Hayek wasn’t infallible. And in chapter three of The Road to Serfdom, he makes some arguments in favor of “harmless” market intervention that call for scrutiny.  

No Such Thing as Harmless Regulation

As I made my way through chapter three, I did a doubletake after coming across this passage:

To prohibit the use of certain poisonous substances or to require special precautions in their use, to limit working hours or to require certain sanitary arrangements is fully compatible with the preservation of competition.”

In this chapter, Hayek regularly uses the word “competition” to mean free market. He also asserts that “planning” is, in and of itself, the enemy of competition. Hayek argues that not all state action qualifies as “planning” and as an encroachment on “competition.”

Hayek reasons that since these types of regulation do not interfere with the means of production themselves, it is fully compatible with free market capitalism. He has also argued that since these are “blanket” regulations—no one can use these substances— and not individual regulations—only this group can’t use them—they do not inhibit the market’s ability to function freely. In Hayek’s mind, for example, the state limiting the number of widgets you can produce is far more intrusive than outlawing certain harmful substances.

Those of us alive today are blessed us with the gift of hindsight. This has allowed us to recognize (hopefully) that these types of policies necessarily rig competition in favor of one group over another. In fact, when it comes to the market, there is no such thing as a neutral intervention.

The Overtime Rule that Almost Was

For example, last fall, the Department of Labor set new regulations regarding overtime pay. Concerned that the American worker was being exploited, the department declared that those earning an annual salary of $48,000 or less would only be allowed to work 40 hours a week. If for some reason more than 40 hours of work was needed, the employer would be mandated to give overtime pay.

This kind of regulatory policy was explicitly conceded by Hayek as acceptable in the abovementioned passage.

But instead of safeguarding workers, the overtime rule would have hurt their ability to get ahead in their careers. The salary threshold that the Department of Labor had agreed upon disproportionately impacted entry-level workers. Since work hours were to be limited, young professionals no longer had the ability to work long hours in order to prove their dedication to their career and improve their chances at a promotion. As Jeffrey Tucker wrote:

“To really make it in an industry, you need more than a connection and a credential. You have to show that you have the stuff. You need to demonstrate your personal commitment. And you will typically be tasked to show this while living on a low salary — not so low as to qualify for overtime but not high either.

This exemption from overtime rules is what makes the Prada economy work. It permits workers to strut their stuff without imposing new financial burdens on employers. This is what the new rules would abolish.”

This would put young workers at an unfair disadvantage relative to those who had been in the workforce longer and had already put in the hours needed to move up the corporate ladder.

In fact, so concerned was the American worker about the negative impact this new overtime rule would have on their careers, that it ended up being killed before it was enacted.

Beware of Slippery Slopes

Another problem with “benign interventions” is that the state is incapable of self-restraint. This is why so many governments fall victim to tyranny and oppression. Once those in authority are given even the slightest increase of power, they will use it as precedent and leverage to incrementally take more until true freedom exists in name only. In other words, if you give the government an inch, they will take a mile.  

Mises made this same point in Human Action:

“But whoever is ready to grant to the government this power would be inconsistent if he objected to the demand to submit the statements of churches and sects to the same examination. Freedom is indivisible. As soon as one starts to restrict it, one enters upon a decline on which it is difficult to stop. If one assigns to the government the task of making truth prevail in the advertising of perfumes and toothpaste, one cannot contest it the right to look after truth in the more important matters of religion, philosophy, and social ideology.”

Such has been the case throughout history, and such will always be the case so long as governments are invited to regulate on behalf of consumers and workers alike.

This is why constant vigilance should be practiced and even “moderate” regulatory practices should be fought at every step. For even the most moderate of policies, with the most “rational” of justifications, will result in the unforeseen consequence of a controlled economy. As Mises wrote:

“All varieties of interference with the market phenomena not only fail to achieve the ends aimed at by their authors and supporters, but bring about a state of affairs which—from the point of view of their authors’ and advocates’ valuations—is less desirable than the previous state of affairs which they were designed to alter. If one wants to correct their manifest unsuitableness and preposterousness by supplementing the first acts of intervention with more and more of such acts, one must go farther and farther until the market economy has been entirely destroyed and socialism has been substituted for it.”

As Dan Sanchez has written:

“In a brilliant bit of economic reasoning in his classic essay ‘Middle-of-the-Road Policy Leads to Socialism,’ Mises showed how even such a seemingly-minor intervention as a price ceiling on milk would inevitably lead to full-blown socialism, if the government pursued it to the bitter end, and if it undertook further interventions to try to deal with all of its negative consequences, as well as the negative consequences of those and all subsequent interventions. Thus, Mises called interventionism ‘a method for the realization of socialism by installments;’ or, as we would say, ‘socialism on an installment plan.’”

Hayek understood such dangers as it pertained to the collectivist mindset. The entire second chapter of the book was dedicated to warning that all forms of collectivism necessarily lead to tyranny. We would be wise to extend this wariness to even seemingly benign forms of intervention as steps, however small, down the road to serfdom.

The Noble Life Of The Creative And Ethical Entrepreneur.

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Economists seem to believe that life should be conducted in a cold and calculating manner. They talk about rational decisions and optimized systems, based on the economic calculation of costs and benefits. Worse, they believe that only they, as experts, are able to make the most rational decisions and to design the optimized systems, and they contrive to impose them on the rest of us through the coercive institutions of government.

What’s Right Way To Look At Entrepreneurial Ethics?

One of the excuses economists and bureaucrats use for this coercive imposition is “social justice” or “redistributive justice”. They look at the outcomes of economic activity and they judge it to be just or unjust based on their own subjective opinions. They assume that resources are fixed, and focus on their distribution. They exhibit high time preference – placing a higher value on their perception of the short term justice of redistribution, despite the amply proven negative societal effects of intervention and planning, including the loss of individual freedom.

They make no allowance for the fact that the individuals involved in the entrepreneurial process behaved in a completely ethical fashion. How can the results of ethical behavior be deemed to be unjust?

If Economists Thought Like Humans They’d See Things Differently.

Economists need to be much more human. They can recognize humans as creative actors in a dynamic system, who act within well-evolved ethical principles that provide them with guidance for their behavior and reflect their respect for human freedom.

The most important attribute of the entrepreneur is empathy for others – an understanding of and appreciation for their wants and needs and dissatisfactions. Empathy helps the entrepreneur in the creative process of designing a new and better offering to help meet those needs and wants and end the dissatisfaction.

Earning A Reputation By Acting Ethically.

With a potential new offering in hand, the entrepreneur enters a period of sacrifice to bring the offering to market. It takes money and time to assemble resources, perfect the new recipe or formulation or code or operating system, and make it ready for customer consideration. Great care must be taken over the delivery of the product or service, and in the customer service that supports it. The entrepreneur wishes to earn a reputation as trustworthy and reliable, someone who keeps promises. As Adam Smith put it in the 1759 language of Theory Of Moral Sentiments, the entrepreneur wishes to be loved, and to earn that status by being lovely, i.e. worthy of the sentiment.

The entrepreneur can not always coldly calculate the future costs and benefits of his or her actions on behalf of the consumer, because conditions and tastes are always changing. But the entrepreneur can always act within the guidance of ethical principles, demonstrating empathy and earning love, and can be confident that this pattern of behavior will be well supported in the marketplace.

Ethical Behavior Coordinates The Entrepreneurial Process.

With millions of entrepreneurs serving hundreds of millions of customers in this way, the dynamic social process is coordinated by ethical principles. Individual behavior is judged as just or unjust based on the general rules regulating property rights and the earning of the results of their own entrepreneurial activity, and not on the basis of distributive outcomes.

The Concept Of Redistributive Justice Makes No Ethical Sense.

So called social justice or redistributive justice aims to judge as just or unjust the results of the entrepreneurial process, regardless of whether or not the behavior of participating individuals has been in line with general ethical and moral rules. It makes no sense.

A) It violates the traditional principles of property rights formed by common law that have made civilization possible. It is within these property rights that entrepreneurs design customer offerings and make the sacrifices required to bring their offerings to market for the customer to evaluate.

B) The coercive element of social justice constrains the free practice of entrepreneurship, and therefore places limits on the creativity and co-ordination that generate civilization.

C) Coercive redistributive justice actions violate the ethic that individuals have a natural right to the results of their own entrepreneurial activity.

Entrepreneurship is the most ethical way in which an individual can contribute to social coordination and social growth. Encouraging entrepreneurial coordination is the most positive contribution we can make to strengthen civilization, as opposed to tearing it down through divisive social justice attacks.

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This post was inspired, in part, by the Jesus Huerta de Soto essay The Ethics Of Capitalism, Journal Of Markets And Morality, Fall 1999.

See also How Adam Smith Can Change Your Life, by Russ Roberts.

Labor Unions and Bastiat’s “Candlestick Makers’ Petition”

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A legal battle was recently waged by a major labor union against the latest entity accused of stealing jobs:  goats.

The American Federation of State, County, and Municipal Employees (AFSCME) and the University of Michigan have had a well-established working relationship with each other for years. But this is largely because the labor union holds a contract with the school, barring it from hiring non-AFSCME members for various positions. Landscaping is among the many career fields supported by the union and is actually at the center of this latest controversy.

While the university has traditionally employed AFSCME landscapers to tend to the school’s outdoor grass-trimming needs during the summer, the school has — albeit on accident — gone a different route this season and union members are anything but pleased.

Blame It on the Livestock

Tasked with clearing poisonous brush and overgrown vegetation that is both extremely difficult for humans to remove and all the more plentiful in the summer months, the university decided to utilize goats to get the job done. Renting a team of 20 goats from local residents, the livestock were expected to complete the 15-acre clearing job before students returned to campus in the fall.

But the goats exceeded all expectations and instead of completing the job by the end of the summer, they fulfilled their task in a matter of weeks. Since the goats had been rented for the season and were still in the care of the university, they were allowed to graze on campus property after they had finished clearing the overgrowth. While this was not the campus’ original intent, this grazing allowed the goats to feed themselves while the university received a cost-effective lawn mowing service on campus. But not all parties saw this cheap labor as a win/win for the campus community.

As animals, the goats themselves were not privy to the terms of the AFSCME’s contract with the school and made the grave error of eating grass that existed outside of the designated 15-acre clearing area. Unfortunately, trimming grass on campus property is a job-protected in the labor union’s contract with the university, making these goats “scabs” in the eyes of the AFSCME.

In a recent grievance filed against the university, the union asserts that “goat crews” on campus have jeopardized the livelihood of its members, specifically its landscapers who are currently out of work. The union claims that these animals have effectively stolen employment opportunities from its members since the goats have essentially offered the same service but at a much lower cost. As a result, the AFSCME believes that the school is in violation of its collective bargaining contract with the union and has sought legal action.

The union’s president, Dennis Moore, commented on the matter saying, “AFSCME takes protecting the jobs of its members very seriously and we have an agreed-upon collective bargaining agreement with Western Michigan.” He continued, “We expect the contract to be followed, and in circumstances where we feel it’s needed, we file a grievance.”

The university’s spokesperson, Cheryl Roland, responded to this by explaining that, “For the second summer in a row, we’ve brought in a goat crew to clear undergrowth in a woodlot, much of it poison ivy and other vegetation that is a problem for humans to remove. Not wanting to use chemicals, either, we chose the goat solution to stay environmentally friendly.” Roland also added, “The area is rife with poison ivy and other invasive species, and our analysis showed the goats to be a sustainable and cost-effective way of removing them.”

But as ridiculous as this entire debacle is, and it is surely ridiculous, these claims are anything but new. Competition is the enemy of coercive labor unions, who have always depended on the long arm of the state to prop up their monopoly over certain sectors. This is as true today as it was in the 19th century when protectionism in France was becoming all the more common.

The Candle Makers

In Frederic Bastiat’s brilliant satirical essay, “Candlestick Makers’ Petition,” he uses hyperbole to highlight the absurdity of the claims espoused by the AFSCME, well over a century before Michigan’s “goatgate” even began.

Written in 1845 as an open letter to French Parliament, Bastiat penned the essay on behalf of the “Manufacturers of Candles, Tapers, Lanterns, sticks, Street Lamps, Snuffers, and Extinguishers, and from Producers of Tallow, Oil, Resin, Alcohol, and Generally of Everything Connected with Lighting.” The grievances contained in his essay were aimed at the enemy of all those in the “light business”: the sun.

“We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price,” Bastiat writes. He then calls upon Parliament to remedy this unfair competition by asking for the following:

We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull’s-eyes, deadlights, and blinds — in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat.

In a not-so-subtle jab aimed at members of French Parliament who often pretended to support consumers by instituting monopolies for their “own well-being” Bastiat says:

You no longer have the right to invoke the interests of the consumer. You have sacrificed him whenever you have found his interests opposed to those of the producer. You have done so in order to encourage industry and to increase employment. For the same reason, you ought to do so this time too.

Bastiat’s “Candlemaker’s Petition” was a satirical exaggeration to make a point: imagining producers asking the government for protection against competition offered by a part of nature. Yet today, we have a union earnestly doing exactly that in real life. 21st-century reality has become more absurd than 19th-century satire.

What Wage Crusaders Don’t Understand About Human Action

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Women in the workforce are constantly bombarded by rhetoric intended to make us feel less appreciated than our male colleagues. Politicians and Hollywood celebrities — many of whom have never worked one day in a traditional office setting — seem to take great pleasure in telling females that we are victims of the alleged gender wage gap.

Asserting that today’s working women make only 78 cents for every dollar earned by a man, high profile personalities from comedian Sarah Silverman to former President Barack Obama have perpetuated this myth and used it to further their own agenda: more government control over wages.

Unfortunately for these wage crusaders, when the data is examined more closely what we find is not necessarily a wage gap, but what could more accurately be described as a “preference” gap that exists because of personal choice rather than gender.

True, if we were to add up the salaries of every working man in the country, and then we compared that average to the average of the combined salaries of all working women, there would most certainly be a wage gap present. However, this statistic doesn’t tell the whole story.

The gender wage gap neglects to account for any other contributing factors aside from gender and wage earnings. It does not take into consideration, for example, that each individual, regardless of gender, is driven by a unique set of incentives. Instead, it assumes that wages are the end-all, be-all for every single American worker.

Human behavior is not a predictable science. We can never know for certain what drives another person to make their decisions, but the decisions themselves may tell us what a person values most.

Dedicating her career to understanding the gender wage gap, economist Claudia Goldin discovered that in the early years of career development there was virtually no wage gap between men and women working in the same field. In fact, when she compared male and female colleagues with almost identical resumes and intellect, a wage gap of less than one percent existed between them.

However, as time went on this gap did eventually widen as some of these working women began making the decision to marry and have children. Once these women decided to take on more caregiving responsibilities, flexibility began to outweigh the opportunity to earn higher wages. In other words, their priorities shifted.

Instead of seeking a promotion, which often means more responsibility and more time spent in the office, many females with caretaking responsibilities have instead chosen to accept lower pay in exchange for the benefit of spending more time outside the office.

A woman’s decision to accept lower wages in exchange for added flexibility does not mean her employer has assigned less value to her work due to her gender. Instead, it shows that for many female employees, flexibility is worth more than having a higher salary and more office responsibilities. It is a manifestation of choice and human action.

When the 2014 Sony leaks revealed that Hollywood actress Jennifer Lawrence had made less money than her male costars in the film American Hustle, Hollywood was outraged and demanded that government help bridge the gender wage gap.

Actress Robin Wright took a different approach to this issue by taking matters into her own hands. When it came time to negotiate her salary for the next season of House of Cards, Wright went into her contract meeting prepared to demonstrate her worth. Armed with data showing her character’s rising popularity among viewers, she demanded to be paid as much as her male costar, Kevin Spacey. Once she presented her case, her demands were met and she was compensated accordingly.

For Wright, putting up a fight was well worth potentially dragging out the negotiations process if it meant receiving higher wages. However, not all actresses value higher earnings over the burdensome struggle of salary negotiations.

When asked how she felt about being paid less than her male costars, Lawrence admitted that the pay discrepancy was largely a result of her own unwillingness to negotiate a higher salary. Already making millions from two successful film franchises, Lawrence had no desire to drag out negotiations when she didn’t really need or want the extra money. In short, she valued convenience over higher earnings and chose to end the negotiation process early.

The gender wage gap theory relies on a statistic that attempts to draw a very narrow conclusion from a very broad set of data. As individuals, we are each fueled by unique value systems which help us make thousands of decisions on a daily basis. To reduce each individual decision down to a person’s gender is not only insulting, it also completely neglects the importance of human action.

“Digital Leninism” Is The High Tech Threat To Individual Freedom.

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Here at https//:centerforindividualism.org, we certainly believe that the emerging technologies of cloud computing, global exchange platforms, artificial intelligence and blockchain can augment individual capabilities and release us from collectivism and dependent relationships on governments and corporations. However, we also recognize that, in the hands of bad actors, there are modern technologies that can be employed for the opposite purpose: the subjection of individuals.

Read more

Three Arguments against a Universal Basic Income

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Every so often a new study is released, concluding that a universal basic income (UBI) is needed to fix this country’s welfare system. Most recently, the Roosevelt Institute claimed that switching to a UBI system could actually grow the economy by $2.5 trillion by the year 2025.

The study is full of hypothetical situations in which Americans receive a UBI of varying amounts. The research concludes that the higher the UBI, the more prosperous the economy. But like many UBI apologists, the study misses the major problems with such a system. Here are the three main ones:

  1. It’s Expensive

Proponents claim that the UBI would be an effective replacement for the country’s bloated welfare apparatus, and so would actually reduce overall costs.

Unfortunately, a welfare state by any other name is still a welfare state. And the UBI is just replacing one pricey system for another. And unlike the current welfare state, which has standards for determining who qualifies for certain aid, a UBI would be given to everyone. This would dramatically increase the pool of citizens receiving benefits from the state and inflict massive expenses across the board.

The Roosevelt Institute study posits two different ways to fund the UBI. But neither would benefit the national economy or the taxpayer. The study’s “positive” findings of economic stimulation are only applicable if the program is funded by increasing the federal deficit. So basically, in order to “grow” our economy, we must first plunge the American people even further into debt.

The second scenario presented in the report was a UBI funded through increased taxation. In this instance, the study found no net benefit to the overall national economy. In fact, the report even went so far as to state:

When paying for the policy by increasing taxes on households rather than paying for the policy with debt, the policy is not expansionary. In effect, it is giving to households with one hand what it is taking away with the other. There is no net effect.”

There would be an effect, however, on the American taxpayer. When the Resolution Foundation, a think tank in the UK crunched the numbers to see what the cost would be to the taxpayer, they found that the amount paid would actually be much more than the amount received.

Commenting on the problems with the UBI as they related specifically for the UK, Robert Colvile writes:

…From the first pound you earned to the £43,001st, you’d pay a combined rate of income tax and National Insurance of around 35-40 percent, after which the higher rate of tax would kick in as normal. In other words, to get that £3,692 from the Government, you’d pay thousands of pounds more.”

What this type of proposal really means is that a vast sum of people will be paying more in taxes than they already do. Colvile also notes that “In fact, it would represent a transfer of £120 billion of extra taxation into the welfare state – the equivalent of the entire budget of the NHS in England.”

If this is the case for the UK, it would most certainly be the case for the US.

This money has to come from somewhere. It will not appear out of thin air. And unfortunately, it is the American people who would be stuck with the bill for a grandiose UBI system.

 

  1. Incentives Work, Handouts Don’t

Incentives are a powerful force. And there is no greater incentive than financial security and holding a job is essential to that end. When something comes easy, it is easily taken for granted. And while it would be nice to believe otherwise, giving cash handouts to every American incentivizes them to try that much less.

By removing the financial incentive to work, the state is encouraging idleness, something contrary to the entrepreneurial spirit so deeply woven throughout our country’s history.  

During the Clinton era, the welfare state saw tremendous decreases. But that didn’t mean there were millions of Americans struggling to get by. Employment actually increased because individuals were incentivized to get jobs when there was no longer a guaranteed safety net.

 

  1. The Welfare State Isn’t Going Anywhere

As previously mentioned, there are always claims that a UBI could decrease, reform, or even abolish our welfare system. But no one seems to have any idea as to how this transition would actually look.

This is because there is no transitory plan in place. And any such plan that came to fruition would surely be political suicide since you run the risk of angering someone. And for politicians who rely on the support and approval of their constituents, this is sure to bring some unwanted criticisms.

Anyone in the policy realm knows that there is no better way to alienate older constituents than threatening to take away their Social Security benefits. In fact, even the mere mention of decreases usually causes rooms of senior citizens to fear for their well being. Even if there is an alternative plan presented to them, it does not calm the fears of what might happen during the transitionary period. It is for this reason that Social Security is often called the “third rail” of politics.  

Additionally, trying to get individuals transitioned off of one welfare plan, and into the next requires, at least temporarily, the funding of both programs. A decision to enact a UBI would not magically abolish the American welfare system. America’s welfare programs have been around for so long, it would take time to unroot it. Too many people have become reliant on our welfare state to have it simply wiped out overnight.

And who is going to pay for the process in the meantime? Well, the American taxpayer of course.

If anything, incorporating a UBI in America would most likely result in an additional layer of the welfare being added on top of our existing programs. This would, in effect, increase the state’s power rather than decrease it. Governments are rarely keen on relinquishing their power, and there is great power in controlling the welfare of the citizenry. It is therefore highly unlikely that the welfare state as we know it today would simply cease to exist.

There Is No Welfare Utopia

Bastiat famously said, “The state is that great fiction by which everyone tries to live at the expense of everyone else.” This is exactly why any form of welfare state is bound to fail. You cannot take from one, give to another and expect everyone’s hardships to be solved.

The UBI creates the illusion of decreasing the welfare state when the facts of the matter all point to the contrary. Everyone would like to live in a society where no one wanted for anything and everyone was provided for. But we live in a society of individuals with individual aspirations and goals. Pretending that we can centrally plan a welfare system with so many distinct wants and needs is unrealistic and unobtainable.

Our current system cannot be maintained because it’s too expensive. Period. Already programs like Social Security are projected to run out of money within the next decade and there is no plan for how to approach this coming storm. Why would anyone think broader welfare state situation would be any different?

If we cannot financially maintain our current system, it would be an unwise to believe we could somehow afford a UBI. As Colvile says when comparing one welfare system with the other, “It’s old wine in new bottles – redistributive, seventies-style taxation under a trendy new branding.”

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