Leading the Revival of Individualism & Self Reliance

America Is The Last Remaining Capitalist Country, Sinking In The West. Gradually At First, Then All At Once.

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America was conceived in liberty, and an individualistic capitalism was a core component of liberty. Political freedom could not exist without economic freedom. Freed from the yoke of British imperial mercantilism and protectionism, Americans became traders on the global market, farmers and ranchers, manufacturers, engineers, designers, lawyers and doctors, selling their goods and services in response to customer demand, and becoming the greatest creators of improved living standards for everyone on the planet.

It was never questioned that the capitalist system was the engine of elevated living standards for all. It was recognized that the human energy that was critical to the system came from individuals with some special combination of ambition, drive, creativity, empathy and grit. Consumers loved the cars and software and healthcare and restaurants and fashionable clothes brought to them by entrepreneurs and conferred their grateful rewards in the form of profits.

This system is responsible for unprecedented levels of comfort, health, achievement, peace and personal fulfillment. All other systems are worse. And yet we are sprinting away from it.

How does this happen? As Ernest Hemingway wrote in The Sun Also Rises: Gradually, then suddenly. Capitalism gradually becomes corrupted by democracy. Democracy has different goals than capitalism. It demands the political way, whereby an assembly of anti-capitalist special interests can be assembled to create a voting majority dedicated to reaping the benefits of economic confiscation and the redistribution of the product of capitalist enterprise. Capitalism is creative and democracy is restrictive and constraining, accelerating into destructionism as it enters its socialist phase.

Here are the phases through which we have progressed in America.

Entrepreneurial Capitalism

Entrepreneurial capitalism is capitalism in its highest and most productive form. Entrepreneurs are alert individuals who observe the ways in which consumers would prefer to improve their lives. They imagine a future in which these improved conditions would be realized, and they assemble the resources and processes and capital required to bring that future into being. Their success is never certain, and they take the risk represented by that uncertainty on their shoulders. When they are successful, the consumer’s life is improved and the entrepreneur makes a profit, perhaps becoming rich. The entire society takes on the dynamic improvement of increasing betterment. Entrepreneurs introduce new processes to make production more efficient, and they harness new technologies for even greater productivity. They do so because the system provides them with the incentives to produce ever improved goods and services at ever lower prices for ever more people. These alert individuals compete with each other to see who can help society the most. More often, they collaborate by forming firms and other structures that make the entrepreneurial process even more productive.

Government-Regulated Capitalism

In a democracy, at the same time as entrepreneurs are making economic and technological progress to serve more people in better ways, a smaller group of individuals is pursuing a different path: the political path. Their goal is not financial and economic success, but power and control. They see in the achievements of the entrepreneurs an opportunity to finance their path to increasing power. They begin to impose restrictions on the entrepreneurs in the form of regulation and taxation, and they begin to confiscate the gains with which the market has gratefully endowed the creative, productive, innovative entrepreneurs.

How can they do this? Because the electorate thoughtlessly granted the political class the right to legislate and regulate. Or perhaps they seized it unilaterally. In any case, it is in their power.

And why do they do this? Because the confirmation procedure in democracy is advanced by majority vote. The politicians can assemble a majority of voters by promising them that they can receive the rewards that belong to the entrepreneurs without taking any entrepreneurial risk, and without having to test themselves against the preferences of consumers. They can simply become the beneficiaries of redistribution and confiscation by the political class.

At first, the entrepreneurs continue to create, innovate and produce. They tolerate the confiscation of a part of their profits while they are free to keep on earning more.

Crony Capitalism

At some point, one entrepreneur or entrepreneurial firm makes the economic calculation that a dollar spent on lobbying or otherwise collaborating with government can generate a higher accounting return than the same dollar spent on more R&D. This calculation turns on whether legislation can result in regulation that protects them against competition (for example, erecting barriers to competition like licensing), or against foreign imports (e.g. tariffs), or gives them a more favorable tax environment than another industry.

As soon as the firm makes this calculation, they begin to sidle up to government in order to become a partner in designing laws and regulations and tax systems. The boundary between the economic way and the political way becomes blurred. Profit depends more on serving government than in serving consumers.

It is in the largest companies that this trade-off between R&D and lobbying first becomes relevant, because, as a result of their size and concomitant bureaucracy, they are usually less productive than smaller, more creative and more agile companies. They can afford the lobbying costs, and they welcome the protection of government from the never-ending demands of the free market to keep on innovating. These big companies become the crony capitalists. They co-participate with government in industries like aerospace and defense, in computing and cyber security, in healthcare and, most of all, in banking. Their lawyers write the regulations in many cases, for the administrative state to publish, and then the crony capitalists hire more lawyers to supervise compliance with the new laws. Smaller companies wilt under the compliance burden and can no longer compete. Sclerosis sets in.

Controlled Capitalism

Under government-regulated capitalism, the economic energy is initiated privately and government steps in ex post to tax and regulate. In crony capitalism, the market and the government move to the stage of partnership, where each has an interest in economic growth and there is still some possibility of the consumer benefiting from that growth, albeit in a constrained, contorted fashion.

But the government is not satisfied with the partnership. They want to control the economy rather than be a partner in its munificence. The next stage is Controlled Capitalism, where the elected politicians, the legislature and the administrative state set out in advance the political conditions for what remains of the economic way.

They mechanism for this control goes by the name of policy. Or public policy, to clearly differentiate it from the private concerns of the free market. For example, the government may have an industrial policy, described in wikipedia this way:

… official strategic effort to encourage the development and growth of all or part of the economy, often focused on all or part of the manufacturing sector. The government takes measures “aimed at improving the competitiveness and capabilities of domestic firms and promoting structural transformation.” A country’s infrastructure (including transportation, telecommunications and energy industry) is a major enabler of the wider economy and so often has a key role in Industrial Policy.

Note the term “all or part of the economy”. And “promoting structural transformation”. In other words, the government takes the lead, they’re in charge, and the role of the entrepreneurs and private firms is to follow the policy. They are firmly controlled.

Democratic Socialism

Democratic socialism is the final stage of the demise of entrepreneurial capitalism. The betterment of the citizens through the creative initiatives of entrepreneurs is no longer the purpose of economic activity. Individuals and firms are no longer the captains of the ships of the economic fleet. The consumer is no longer sovereign in determining what gets produced and what does not. Profit is no longer the market signal of approval for the efforts of entrepreneurs.

The word Democratic in the descriptor indicates that this system is political not economic. The word Socialism indicates that the profit signal has been replaced by collectivist goals which eschew profit. For one thing, there is no cost to these goals because the government can print or draw into digital existence as much money as they require to pursue them. Cost is a thing of the past. And the benefits are not economic growth or betterment, but collective goods such as universal welfare (such as the Universal Basic Income), equality of some sort (undefined yet desirable), and global projects such as carbon-free energy.

We got here gradually. There were big stair steps along the way: the creation of the Federal Reserve, the New Deal, the Great Society, the War On Drugs, the government bailouts during the Great Recession, and Obama Care. Robert Higgs, in Crisis And Leviathan, called this process “the ratchet”. Each stair step is a ratcheting up of government control, and it never reverses. It just progresses to the next turn of the ratchet.

But now comes the All At Once Stage. If we give up on the basic components of the capitalist system – on the rewarding of entrepreneurs for their creativity, imagination and risk-taking, on the economic freedoms that make their creativity possible, and on the profit motive itself – we give up the economic way and submit ourselves 100% to the political way.

Economics For Individuals: These 5 Elements Of Economic Thinking Will Help You To Make Better Decisions.

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There is an economic way of thinking, and it can be really helpful and clarifying . If you can master these 5 elements, you’ll make better decisions in all aspects of your life.

1)   Take Economizing Actions

Economics is about economizing. To economize means to allocate whatever scarce resources are available to you in a way that, consistent with ethical considerations, makes you feel that you have used those resources in the most productive way: you get the most you can of what it is that you want. Scarcity makes economizing necessary – if we had access to unlimited resources, no economizing would be necessary. Time is one of those scarce resources – once we’ve used it up its gone, and we can’t do two things at once, so we must make an economizing choice.

Sometimes we do it badly, especially if we are missing some relevant information. Information is also a scarce good, and we have to sacrifice other goods – like time and energy – to get more of it. At some point we make the decision that more time and energy spent on a decision will not be justified, and we make our incompletely informed choice. The economic way of thinking is to make these calculated choices very consciously.

2)   Make Trade-offs

Economizing means trade-offs. We would like to have more of one thing, but we give it up in order to have more of something else. Trade-offs don’t have to be all or nothing. We may feel we have a “need” for something, but we find ways to economize as it becomes more expensive. We “need” water, but as the price goes up, we may irrigate our land less, wash our cars less frequently, and install water-saving devices on our toilets and showers. It’s never all or nothing. The trade-off decision is always at the margin – and we find there are many margins. If the city imposes a traffic congestion fee on driving into the city, we might start car-pooling, or walking to work or taking public transit or working remotely. There are always alternatives at the margin. Make your trade-offs thoughtfully and carefully.

3)   Recognize Opportunity Costs

When we make a decision at the margin, we are calculating, as best we can, incremental benefits and incremental costs of every choice. These benefits and costs are largely emotional: do we feel better or worse as a result of our choice? Only actions have costs, not things. Choice is an action. The cost is the value of the opportunity we will have to give up if the action is taken. If I choose to spend $15 to go to the movies, I am giving up the chance to enjoy myself in the bar next door for a couple of hours. The cost of going to the movies is not $15, it is the value of what I otherwise would have been able to do – and the pleasure I would have gained – with the $15.

Note that, at the time of the choice, the opportunity cost lies in the future. It is the cost of what will be foregone.

4)   Coordinate with others

The core problem for the economizing actions of individuals is scarcity. The core problem for economic interactions between individuals is a multiplicity of diverse projects. The solution to this interaction problem is coordination.

Economizing individuals specialize. They find what they are best at and what they can get paid the most for. Specialization without co-ordination would be chaos. Coordination is an exchange process. Co-ordination may not necessarily be efficient – it just has to work for everyone’s benefit. If a writer chooses to specialize in writing articles about economics, it is important to have cooperation from the editors, internet technicians, farmers and service workers who make writing possible and help to keep the writer fed, nourished and healthy. The job of economics is to explain how this coordination process – the market – works, and to explain to those who wish to impede or intervene in this coordination why they are wrong to do so, and the damage they would inflict.

Don’t try to maximize efficiency in your collaboration with others. Just try to make it work for all parties.

5)   Use markets and prices to make deals that are mutually beneficial, irrespective of regulations.

These explanations of how the market works focus on relative prices and price movements, because prices provide the information and the incentives for coordination. When demanders want more than suppliers have made available, they will compete among themselves for the scarce supply, and bid prices up. This incents some demanders to put up with less than they thought they needed because the price is higher than their opportunity cost. At the same time, some suppliers will be induced to supply more than they originally planned to. Competition among suppliers will have a downward influence on price. How it all settles out depends on the specific circumstances of time and place and the clarity and speed of the information exchange.

Interventions to “fix” prices (like minimum wage laws and rent controls) will have unintended consequences because they change the circumstances. The ignorance and uncertainty facing the price fixers – they can’t know how every market participant will react to the new information – means that they can never be sure of or in control of the consequences of their actions. For example, if an employer wants to hire and a worker wants to work, if the wage is fixed, the two parties can negotiate the non-wage components of the arrangement until they arrive at a mutual agreement. The market has settled, and the two parties have created new information of which the interventionist is ignorant. This is not market failure, it is the subjective value preferences of the two individual parties aligning through cooperation, irrespective of the unaligned values of the interventionist.

Recognize that there are many components of an exchange, and many of them are not monetary – they have no price but they have a benefit or a cost. Make your deal by recognizing both monetary factors and intangibles.

 

Adapted from Paul Heyne, Economics Is A Way Of Thinking, at The Best Of Online Library Of Liberty

Get Married, Have Kids, Work In A Corporation. Then Become An Entrepreneur.

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Research done by a Duke and Harvard team found that family entrepreneurship, prior interest, and extreme interest, did not heavily influence the success of the first-generation entrepreneur. So what had? Tertiary education — though not which university they’d graduated from — provided a huge advantage.

With a billion people becoming connected via smartphones with the computing power of supercomputers, India has the ability to build a digital infrastructure that is as monumental as China’s Great Wall and America’s interstate highways. There are opportunities to create dozens of new companies as valuable as Reliance.

Just one thing could hold India back: That the people who should be availing themselves of these opportunities continue to believe that entrepreneurship isn’t for them but is the domain of young college graduates like those from Silicon Valley.

The reality is that even Silicon Valley’s entrepreneurs aren’t young and don’t have special backgrounds. They merely saw an opportunity and seized it. Anyone can become an entrepreneur.I know, because I made the same transition.

I was 33 years old. I had developed a revolutionary technology at First Boston, a New York-based investment bank, and IBM offered to invest $20 million in it — provided that we spun the technology off into a new company. I was asked to take the job of chief technology officer.

I didn’t come from an entrepreneurial family and starting a business was something I never even thought of. My father was an Indian government official; my mother, a teacher. I had no entrepreneurial aspirations and had a wife and two children to support. Taking this position would entail relinquishing a great job that paid a hefty six-figure salary, for a startup that could easily go out of business and didn’t pay well. So it wasn’t an easy decision; but I took the plunge. Our startup, Seer Technologies, grew to 1,000 employees and had annual revenue of $120 million in five years; then we took it public. The IPO was fun, but the experience thereafter was like a nasty hangover. The excitement had gone. Sick of the big-company politics and the obsession with meeting short-term revenue goals, I wanted out.

Microsoft tried recruiting me, telling me it would offer stock worth a fortune, but I couldn’t stomach the thought of working for another big company. So I chose to start my own company again. Having tasted entrepreneurship, I had become unfit for the corporate world, and there was no returning to it. My only regret was having wasted so much of my life in it. I was 40.

Some people say that my transformation was a fluke; that entrepreneurs are born, not made. They also say that successful entrepreneurs are young and have special entrepreneurial traits. Research — including my own Duke and Harvard team’s — says otherwise. But my health suffered due to the stress of running my second company, and I had to switch careers. I still didn’t want to go back to the corporate world; so I became an academic. And the question of what makes an entrepreneur is one of the earliest I researched.

My Duke and Harvard team researched thousands of American entrepreneurs. We found that the majority, like me, did not have entrepreneurial parents and entrepreneurial aspirations at school or university. They’d started companies through tiring of working for others; they’d had a great idea and wanted to commercialise it; or they’d woken, one day, urgently wanting to build wealth before retiring.

We found that 52% of entrepreneurs surveyed were — just as were Bill Gates, Jeff Bezos, Larry Page, Naveen Tewari, and Vijay Shekhar Sharma — the first in their immediate families to start a business.

While in college, only a quarter had caught the entrepreneurial bug, and half hadn’t even thought about it by then.

Family entrepreneurship, prior interest, and extreme interest, then, hadn’t heavily influenced their successes. So what had? Tertiary education — though not which university they’d graduated from — provided a huge advantage.

But what about all we hear of IIT graduates’ dominating Silicon Valley? It is a myth. My research team found that only 15% of the Indian immigrant founders of tech and engineering companies were IIT grads. Delhi University graduated twice as many Silicon Valley company founders as did IIT-Delhi, and Osmania and Bombay universities both trumped nearly all of the other IITs. Education matters but not the school.

We also found that, in the tech world, older entrepreneurs are not the exception but the norm. The average founder of a high-growth company had launched his venture at 40. Most were married and had, on average, two or more kids. They typically had six to 10 years of work experience and real-world ideas; they’d simply tired of working for others and wanted to rise above their middle-class heritage.

There is no real difference between Indian entrepreneurs and American ones. So if anyone tells you that you’re too old to be an entrepreneur or that you have the wrong background, don’t listen. Go with your gut instincts; pursue your passions. You’ll come to wonder why you wasted your time working for your idiotic boss.

Vivek Wadhwa is a distinguished fellow at Carnegie Mellon University at Silicon Valley and author of The Driver in the Driverless Car: How Our Technology Choices Will Create the Future.

 

800 million Chinese Lifted Out Of Poverty By Capitalism. What’s So Bad About That? It Doesn’t Mean Communism Is Successful.

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Among my favorite books of this decade is “How China Became Capitalist” by Nobel-laureate economist Ronald Coase and Ning Wang (2012). In addition to offering fascinating details of Beijing’s post-Mao intrigues, the authors conclude that China’s remarkable economic growth over the past four decades occurred only to the extent that China embraced capitalism.

Makes sense. If heavy- handed government direction of the economy were key to economic growth, China’s economy under Mao would have been the envy of the world rather than a historic calamity. Not until the spread within China of capitalist institutions such as private property and competitive markets did that country’s economy boom.

And boom it did! The World Bank estimates that since 1978 the number of people in China who have been lifted out of poverty is 800 million.

Yet China’s government remains, at least in name, communist. And while far less brutal than during Mao’s reign, it continues to be authoritarian.

This mix in modern China of an intrusive state with relatively free and competitive markets sows confusion. Unaware of the facts conveyed by Coase and Wang, many people mistakenly suppose that China owes its economic success to politicians and mandarins concentrated in Beijing rather than to entrepreneurs and merchants spread throughout the country.

One especially unfortunate consequence of this confusion is the belief that as President Xi Jinping ramps up Beijing’s control over the economy with industrial policies, China will become a dangerous economic rival of the United States.

Among those haunted by this baseless fear is Republican Sen. Marco Rubio of Florida, who calls for us Americans to meet Beijing’s industrial policies with industrial policies of our own. That Rubio and  many other Republicans are stricken with this fear is remarkable. They apparently have gulped down whole the core belief of progressive Democrats that government bureaucrats can outperform free markets.

Rubio and others who tremble with this fear of China should, as my students say, chill. In their efforts to strengthen the Chinese economy through more government control, officials in Beijing are destined to fail.

History is filled with dire warnings of this or that powerful government using extensive controls to propel its economy to a new level of wow. What history is not filed with are actual examples of economies being so propelled. Quite the opposite.

Whenever genuine and sustained economic growth has occurred in reality, that growth was rooted in free, competitive markets combined with respect for private property and a toleration for innovation and change.

Government economic planning undermines these vital institutions and attitudes. Industries that receive subsidies and protection are those that are politically prominent or fashionable. They’re seldom the industries that have a promising future absent the favors bestowed on them by the state.

Making matters worse is the fact that these favors weaken rather than fortify these industries. Born from privileges and protected from competition, firms in these industries have little incentive to become efficient at any task other than begging the government for additional privileges and protection.Such firms do not become awesome global competitors.

And on top of these ills is this problem: All resources diverted to favored industries are diverted away from other industries, including those that would otherwise have grown into  dynamic and successful participants in the world economy.

America’s best response to Chinese industrial policy is to move in the opposite direction by freeing our markets even further.

Donald J. Boudreaux is a professor of economics and Getchell Chair at George Mason University in Fairfax, Va.

If Socialists Really Wanted To Help People, They’d Be Capitalists.

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I heard a joke recently that starkly reflected the reality of socialism.  It was unique.  I can’t recall any other time that I found the reality of socialism amusing.  The joke goes: “How did socialists light their homes before candles?”   The punch line:  “Electricity.”

Three days later, on the following Friday, Venezuela experienced an unprecedented power blackout.  Venezuelans were actually lighting their homes with candles.  Socialist dictator Nicholas Maduro blamed an “electricity war declared and directed by the imperialist United States.”  Seriously.

This socialist reality is something I hope Congresswoman Alexandria Orcasio-Cortez, D-N.Y., (AOC) and her ilk will take to heart.  But, I’m skeptical.  Last week, AOC stated that under capitalism “we prioritize profit and the accumulation of money above all else” but under her desired version of “Democratic Socialism” we put “democracy and society first, instead of capital first.”  In an Alice in Wonderland moment, she concluded that “it doesn’t mean that the actual concept of capitalistic society should be abolished.”

As AOC notes, the motive in a capitalist economy is profit.  But, here’s what she seems to be missing.  Capitalist societies create abundance and prosperity by taking our natural desire to improve our lives – to profit – and directing it outward to satisfying the needs of others.  This much-berated profit motive is precisely what incentivizes us to meet the needs of others because – wait for it – that’s how you profit.

Whatever your business, you can only succeed in a capitalist economy by meeting other peoples’ needs – your customers.  This applies to every business from a roadside lemonade stand to Amazon.  The greater the benefits you provide – to others – the greater your success. If you fail to provide benefits to others, you fail, your business dies, and you lose your investment.  Period.

Directly contrary to what AOC seems to believe, capitalism represents the truest form of democracy.  In fact, we don’t call it “Democratic Capitalism” because democracy” is an inherent element of capitalism.  Capitalism can’t exist without democracy.

Under capitalism, consumers – ordinary Americans – vote every day with every dollar they spend on which businesses succeed and which fail. You don’t succeed in a capitalist economy by meeting the needs of a group of government elites or by satisfying the standards – producing the products – they set.  You succeed by meeting the needs of ordinary consumers who direct the economy and vote with their dollars on which products entrepreneurs should produce.

Think about your local grocery store or the Amazon warehouse.  Each of the thousands of products they offer represents an entrepreneur trying to convince you that they have what you need at a price you can afford.  Those who meet your needs will succeed.  Those who don’t will fail.

Henry Ford didn’t build Fords for the aristocracy, he built them for ordinary Americans.  Steve Jobs didn’t create the iPhone for government elites or to meet some government mandate.  He created them for you and me, and if they hadn’t met our needs, he would have failed.  Amazon isn’t a government-run distribution system.  It is totally and solely consumer driven.  It is superior to any government-run distribution system in any socialist nation in history.  It stays efficient because, as consumers, if we don’t like it, we won’t use it.

Nor does capitalism ignore what is in society’s best interests, as AOC seems to assume.  It simply leaves that decision to the underrated wisdom of ordinary Americans rather than some group of big government elites.

When I ran CKE restaurants, we didn’t sell what I wanted to eat (although I do love hamburgers), we sold what consumers told us they wanted to eat.  We spent millions of dollars every year trying to figure that out.  I was often asked by those on the left why we sold certain products they considered unhealthful.  The answer was that we weren’t the food police, and neither were they.  We sold the products people wanted to buy.  If consumers wanted lower calorie, lower fat or lower carbohydrate products, that is what we would sell.  If they wanted beef-less products to protect the environment from farting cows, that’s what we would have sold.

Like Bernie Sanders before her, AOC misleadingly uses the word “democratic” as an adjective in an attempt to soften the concept of “socialism.”  But, in reality, socialists simply don’t trust people to make the right decisions.  They really don’t have confidence in what they consider the unwashed masses.  If they did, they would be capitalists.  This is why socialist governments are, or inevitably become, totalitarian.

They tried the Socialist Nirvana AOC envisions in Venezuela.  As recently as 2011, Venezuela was the richest nation in South America.  It sits on an ocean of oil.  With promises of benefits and social well-being, the Venezuelans elected – democratically – a group of socialist elites to rule them.  Consumers no longer voted on which businesses succeeded or failed.  As such, entrepreneurs lost the incentive to meet consumers’ needs.  They left it to the government elites.  The result was want, misery and poverty.

So, last week the lights went out and the candles were lit.  Maybe it’s not that funny after all.

 

To Understand Socialism, One Needn’t Fixate On Its Most-Horrifying Elements. Just The Simple Stuff. Like Aspirin.

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In the 1970s, my Dad flew from his home in Pennsylvania to a medical center in Houston to have a then-innovative bypass surgery that extended his life by more than three decades. At the same time, my wife’s family was sending bottles of aspirin to their relatives in the Polish socialist paradise. That dichotomy—Americans receiving cutting-edge medical care even as Eastern Europeans were lacking the rudimentary medicines—always stuck in my mind as I’ve written about political systems.

To understand socialism, one needn’t fixate on its most-horrifying elements—gulags, executions and endless repression. Think about the simple stuff.

After Boris Yeltsin joined the Soviet Politburo in 1989, he visited Johnson Space Center and stopped in a typical Texas grocery store. “When I saw those shelves crammed with hundreds, thousands of cans, cartons and goods of every possible sort, for the first time I felt quite frankly sick with despair for the Soviet people,” he later wrote. At the time, Russians waited in line for whatever crumbs the bureaucrats would sell them.

Why are pundits and politicians talking about socialism again, 28 years after the fall of the Soviet Union? Donald Trump’s vow that the United States would never become a socialist country got people talking. Good for him, even if he should stop praising and excusing North Korean dictator Kim Jong Un, who runs a communist dystopia often described as the “the world’s biggest open prison camp.”

The real reason for the renewed discussion, however, comes from politicians on the other side of the spectrum. It’s apparently hip to be a socialist now, even among contenders for the Democratic presidential nomination. A year before Yeltsin’s U.S. visit, Sen. Bernie Sanders (I-Vt.) took a strange trip to the Soviet Union. A video of the shirtless then-Burlington, Vt., mayor singing with his Soviet hosts as part of a sister-city event has gone viral. That was ages ago. What bothers me is what he—and others on the Democratic Left—have said more recently.

In an article headlined, “Sanders could face more scrutiny for socialist leanings,” The Washington Post referred to the 2016 primary debate between Sanders and Hillary Clinton. Sanders was asked by the moderator in Miami—a city filled with people who fled Cuban communism—about seemingly positive things he had said about Fidel Castro and Nicaragua’s socialist strongman Daniel Ortega. “The key issue here was whether the United States should go around overthrowing small Latin American countries,” Sanders said. That was a transparent dodge. One can oppose American military intervention without having a soft spot for dictators.

These days, some progressives describe themselves as “democratic socialists,” which makes the idea sound kinder and gentler. They aren’t thinking about crumbling buildings in Cuba, starving children in Venezuela and genocide in Cambodia, but might be envisioning a facsimile of Portland, Ore.,—a place with cool, fair-trade, vegan restaurants and hip bars, but without all that private ownership stuff. Yet socialistic policies could turn the nicest cities into wastelands.

Apparently, the leaders in those bad socialist places didn’t do socialism right. As a former Barack Obama national security adviser told the Post, “I think the challenge for Bernie is just going to be differentiating his brand of social democratic policies from the corrupt turn—and authoritarian turn—socialism took in parts of Latin America.”

A turn? Authoritarianism is the inevitable outcome—a feature of socialistic systems, not a bug, because those systems empower government at the expense of individuals.

On its website, the Democratic Socialists of America say they “believe that both the economy and society should be run democratically—to meet public needs, not to make profits for a few.” They don’t offer many specifics, but perhaps your tenants will vote on the rent until you decide to leave the apartment business. These “new” socialists seem as utopian as the old ones. DSA notes that, “a long-term goal of socialism is to eliminate all but the most enjoyable kinds of labor.” Until work is fun, though, someone must divvy up unpleasant tasks on a more equitable basis. You’ve been warned.

Despite air-conditioned homes, full bellies and consumer gadgets courtesy of capitalism, some Americans yearn for a socialist paradise. We can cross one off the list. In 2013, Salon published a piece about the Venezuelan leader’s “full-throated advocacy of socialism and redistributionism” titled, “Hugo Chavez’s Economic Miracle.”

Four years later (with a different strongman but same policies), the BBC described that miracle: “Despite being an oil-rich country, Venezuela is facing record levels of child malnutrition as it experiences severe shortages of food and an inflation rate of over 700 percent.”

Maybe Venezuelans didn’t do it right. Nor did the Russians, or anybody else. Or maybe socialism is a fundamentally flawed idea that always leads to misery by design. We shouldn’t need this discussion in 2019, given mounds of evidence and victims, but here we are again.

 

Steven Greenhut was the Union-Tribune’s California columnist. He is western region director for the R Street Institute. This column was first published in the Orange County Register.

Huerta de Soto Makes the Moral and Scientific Case for Property Rights and Entrepreneurship

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The greatest untold story of economic science occurred more than 250 years before the Scottish Enlightenment and the English and French classicists of the late 18th century. It is widely thought that market driven economic theory was born in 1776 with the publication of Adam Smith’s Wealth of Nations, but Smith cannot take ownership of his great book’s great ideas. In the 15th and 16th centuries, economic theory was being developed by the School of Salamanca in Spain. And these were not economists, economic science didn’t exist yet. They were moral theologians in the Scholastic tradition of Poetic Justice Warrior St. Thomas Aquinas.

As the Mises Institute explains:

Because natural law and reason are universal ideas, the Scholastic project was to search for universal laws that govern the way the world works. And though economics was not considered a separate discipline, these scholars were led to economic reasoning as a way of explaining the world around them.

Their ideas about the justice of the price mechanism (Francisco de Vitoria), the morality of currency exchange (Martin de Azpilcueta Navarrus), subjective value and the inviolability of property rights (Diego de Covarrubias y Leiva), and theories of hard money, credit, inflation, and interest (Luis de Molina) were revolutionary, and are as relevant as ever.

Common to all of them is their focus on individual human action and the hopelessness of government interference in voluntary exchange. In other words, they were the first to discover that entrepreneurial activity is at the core of widespread human vitality.

In the late 19th and 20th centuries, Salamanca’s economic traditions were resurrected and further developed by Austrian School economists Carl Menger, Ludwig von Mises, Friedrich Hayek, and Murray Rothbard, among notable others. Jesus Huerta de Soto, professor of economics at King Juan Carlos University in Madrid, is the Poetic Justice Warrior who is today’s greatest exponent for moral clarity in economic science. As he wrote in 2010:

Entrepreneurship is undoubtedly the quintessential social function, given that it makes life in society possible by adjusting and coordinating the individual behaviors of its members. Without entrepreneurship, it is impossible to conceive of the existence of any society.

The Ethics of Capitalism

As Llewellyn H. Rockwell of the Mises Institute explains about the School of Salamanca, “Spanish universities spawned a revival of the great Scholastic project: drawing on ancient and Christian traditions to investigate and expand all the sciences, including economics, on the firm ground of logic and natural law.” In other words, the economic theories of these moral theologians is rooted in reason and ethics. Unfortunately, according to de Soto, this moral standard of academic excellence has been tossed aside by socialist economic planners. As he explains in his 1999 essay The Ethics of Capitalism:

It seemed that a universal guide for human behavior had been found. Science had apparently managed to eliminate considerations related to justice by rendering them obsolete.

This is a stunning observation, de Soto has proven that collectivist central planning is devoid of individual ethical considerations. In this essay, he also anticipates the remedy:

The formation of an evolutionary theory of social processes, also developed by the Austrian economists, has shown how the most important institutions for life in society (linguistic, economic, judicial, and moral) arise spontaneously over an extended period of time, on the basis of customs, as a consequence of the participation of a large number of human actors.

As Huerta de Soto concludes, “The dynamic concept of markets makes it easier to adopt an ethical position, and to strengthen the argument that markets driven by entrepreneurship are not only more efficient, but also just. There is no justification for any entrepreneur to feel any sense of guilt in appropriating the results of his or her creative activity.” Of course guilt, along with envy, is what the collectivists are selling.

Entrepreneurs and Dynamic Efficiency

Not only do socialist economic planners ignore ethics, Huerta de Soto also proved that the Neoclassical economists, the ones using calculations designed for mechanical physics, were replacing human creativity with a non-existent concept they call aggregate utility. He did this by resurrecting the original definitions of static and dynamic efficiency from ancient Greece – Xenophon taught that dynamic efficiency is “the effort to increase one’s goods by way of entrepreneurial creativity.”

As Huerta de Soto discovered, the equilibrium calculations of the Neoclassical economists were based on static assumptions that are useless in a dynamic world:

The influence of mechanical physics eradicated the creative, speculative dimension which belonged to the idea of economic efficiency from its very origins, and all that remained was the reductionist, static aspect, which focuses exclusively on minimizing the waste of (known or given) economic resources.

In addition to taking on the socialist and econometric central planners, Huerta de Soto has also taken on their fractional reserve banking system. His rationale is that it distorts economic incentives for entrepreneurs and it violates the legal property rights of depositors, rights that evolved over centuries and became substantive law. In his signature treatise on banking – Money, Bank Credit, and Economic Cycles, Huerta de Soto makes the radical case for full reserve banking, meaning all customer deposits are held in reserve, money cannot be created by lending it.

He sharply rebukes fractional reserve banking for their inevitable economic booms and busts. As Austrian Business Cycle theory explains, these are the predictable consequences of their artificial credit expansion. Jeff Deist of the Mises Institute writes,

Applying a businessman’s touch, Huerta de Soto called the 2008 financial and monetary crisis with compelling accuracy in the first (1998, Spanish) edition of his treatise.

Money printing also hamstrings entrepreneurs by replacing their long-term creative capacity with short-term incentives. Whether it is socialist designs, mathematical models, or artificial credit expansion, Huerta de Soto teaches, “To impede the private ownership of the fruits of each human action is to remove the most powerful incentive to create.”

The Essence of Human Flourishing

Jesus Huerta de Soto has issued a powerful condemnation of all economic systems that interfere with property rights, and by extension, a person’s freedom to produce, their incentive to live. As Poetic Justice Warrior Jean-Baptiste Say (he invented the word entrepreneur) discovered with Say’s Law, “the mere circumstance of creation of one product immediately opens a vent for other products.”

After all, living things exist to live, and for human beings, it is our moral duty. Besides the laws of nature, which our gift of reason allows us to master, the only thing that can get in our way is other people. Huerta de Soto is that Poetic Justice Warrior who clears the way for his students, employees, customers, and all entrepreneurs and their customers across the world –

All human actions are driven by the force of entrepreneurship, which continually creates, discovers and transmits information, as it adjusts and coordinates the contradictory plans of the different individuals through competition and enables them to live and coexist in an increasingly rich and complex environment.

 

 

 

 

Small Businesses Are Key In Improving the Lives of Workers – And Everybody Else.

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While one often hears a lot of talk about the virtues of “mom and pop” shops (and the evils of “big box” stores) policy makers do remarkably little to encourage the growth and health of small businesses. While the federal government has created a federal boondoggle ostensibly designed to favor small business — known as the Small Business Administration — only a tiny number of businesses ever benefit from anything the agency does.

Policies Stacked Against Small Businesses

In actual practice, policymakers fawn over large firms, creating special programs for tax breaks and subsidies, as made obvious every time a large firm looks for a new place to put a corporate headquarters. The stated political justification is often that “this business will produce a large number of jobs!” This rationale, however, ignores the fact that if a thousand of the city’s small businesses were given a similar tax break, they would likely produce a comparable number of new jobs. This is conveniently ignored, and policymakers instead choose to favor certain large firms, which in turn makes it harder for small firms to compete.

At the same time, governments at all levels relentlessly hand down ever more regulations and mandates to businesses of all sizes. Yet it is small firms who suffer the most because they have less access to financing, equity, and resources needed to cope with mounting regulatory requirements. Licensing and labor regulations create more pitfalls for small business owners to fall into, while locking many potential business owners out of industries entirely, unless they comply with arbitrary “training” or certification mandates. These mandates can be quite draconian, such as Iowa’s requirement that barbers receive 2,100 hours of training — more training than is required of a paramedic — in order to cut hair.

Other regulations indirectly disadvantage small businesses as well. As finance researcher Karen Petrou noted in the wake of the Great Recession, banking regulations in recent years have made it harder on small businesses:

[C]apital requirements imposed after the banking crisis make it a lot more expensive for banks to do a startup small-business loan than go into wealth management. Startup loans are riskier than wealth management, of course, but the capital costs have become prohibitive, and banks don’t lose money on purpose.

Small Businesses Increase Competition for Workers

It’s at this point that a seasoned reader might expect me to go into a variety of explanations about how the small business economy is important to GDP growth, and to employment growth, and to vague notions of “innovation.”

But that’s not where I want to go with this.

Yes, the small business economy is good for employment and economic development. But small businesses also serve very important social functions, while offering benefits to many workers as well.

The small business economy offers more options for workers who are competing for wage work, while also offering a potential exit from wage work altogether — and entry into sole proprietorship.

In Human Action, Ludwig von Mises  notes that one of the greatest limitations on a worker’s bargaining power with employers is the ability of a firm to exercise monopoly power over hiring. The thing is, this is impossible in a relatively free market. So long as new firms can enter the marketplace, hiring firms will come under pressure from competitors, and thus bid up workers’ wages. As Mises notes, firms must compete with each other for all types of resources, whether building materials, square footage, or financial services. It is no different with workers. Consequently, one of the worst things that can happen to a worker is for governments to create what Mises calls “an institutional restriction of access to entrepreneurship.” If governments act to limit the ease with which new businesses can enter the marketplace and compete with existing firms, this lessens the power of workers. The more firms a worker has to chose from, the better off the worker is. This is, of course, facilitated by a diverse and healthy small business economy.

More Potential Opportunities for All Types of Workers

Benefits for workers also extend to “eccentric” or “niche” workers who might find themselves otherwise relatively unemployable.

After all, large firms often become large firms because they excel at catering to the needs of the most common preferences in the marketplace. Workers who are accustomed to dealing with these mainstream preferences — whether they be along linguistic, cultural, or socio-economic lines — will be a good fit at the large firms. On the other hand, a worker who has poor English-language skills, but who is well versed in in dealing with customers of a certain ethnicity, may find employment far more easy to come by among certain small business owners who cater to a niche, ethnic-enclave, or socio-economic group.

In other words, the existence of numerous small businesses don’t just provide more employment opportunities in the abstract. They often provide more opportunities to workers who have the most trouble in finding employment otherwise.

This is part of the reason why small business ownership has so long been an important part of economic development for ethnic minority groups and for immigrants. Today in the United States, around 25% of U.S. firms are founded by immigrants, and this share rises to above 40% in states like California and NewYork.

And immigrant small business owners are often just part of a growing economy of minority-owned businesses, whether founded by native-born or immigrant owners. According to CNBC:

Business ownership among minorities has been on the rise in recent years. Between 2002 and 2007, minority-owned businesses increased 46 percent, while nonminority-owned businesses grew 10 percent during that same period…

In 2007, Asians owned 1.6 million businesses, African-Americans owned 1.9 million, [and] Hispanics owned 2.3 million.

It’s not a coincidence that many people outside the cultural mainstream are founding their own businesses. Often, these businesses are founded precisely because they provide relatively better job security and flexibility to owners and workers who could not find similarly attractive terms at larger mainstream firms.

Benefits Beyond Money Profits

Economists often debate whether or not the small-business economy is “efficient.” Some have even suggested that small businesses should be regarded as harmful because they use resources that larger firms might be able to more “efficiently” use due to advantages of economy of scale.

This is, of course, a terrible way of looking at small businesses

In addition to the benefits offered workers, small businesses often provide a wide variety of benefits to both owners and consumers in the form of services to the community, and the psychic profits afforded to owners.Unfortunately for small businesses, many of these benefits don’t show up as money profits, and thus economists ignore them.

For example, it is clear that that demonstrated preference of a small business owner is to run a small business even if, in theory, he or she might be able to command a higher wage some other way. It’s not difficult to imagine why this might be. Many small business owners — even if the enterprise does not provide for an especially high income — prefer self-employment to collecting a wage because it offers the sort of flexibility, control, and peace of mind that is not often available to wage earners. While self-employment can often mean long hours, it also often means the proprietor is unlikely to lose all of his income at once, due to being laid off. Even if the business becomes less profitable, the proprietor is not going to walk to his desk one day to find a pink slip. Moreover, if the economy is weak, a business owner can temporarily cut his own wages with more flexibility and ease than he can normally cut the wages of an employee. If times are good, a business owner can temporarily increase his own hours (and income) to take advantage of the sudden increase in demand. For a great many business owners, this sense of control over one’s schedule and career are worth it, even if the full benefits do not show up in any government statistic.

Negative Attitudes Toward Small Business Endure

In spite of all of this, we can expect both policymakers and pundits to largely ignore small businesses and to continue to ignore the high costs imposed on small firms and small entrepreneurs by government regulations.

Some even continue to attack small business owners because they are allegedly not regulated enough.

Last year, for example, the left-wing Jacobin magazine declared that “small businesses are overrated” and that “[w]e shouldn’t fetishize mom and pops. They offer lower wages, skimpier benefits, and inferior labor protections.”

This “analysis” by author Matt Bruenig attempted to make the case that since some government regulations don’t apply to businesses with fewer than 15 employees, this creates a “loophole” through which workers can be oppressed with impunity by small business owners. The ideal economy for Bruenig, it seems, is one in which even the smallest firm must do all the same paperwork and pay the same government mandated benefits as huge corporations.

In real life, of course, this would ensure that few new small firms are ever created at all.

Fortunately, even the center-left Institute for Local Self-Reliance sees the danger in attacking small businesses. As noted by the ILSR’s Stacy Mitchell, small businesses disperse economic resources more evenly throughout a community, and, as Mises noted, they provide more options to employees while creating more competition for large firms. Nor do small firms really pay less, unless we’re talking about highly-paid managerial jobs. Although Bruenig thinks small business should be trashed because they allegedly pay lower wages than large firms, Mitchell writes:

For low- and middle-income workers, there is no wage gap between small and large firms. People in the bottom 50 percent of the income distribution earn about the same working at large firms as they do at small. In other words, the fact that big companies pay more on average is solely a function of the earnings of their highest paid employees.

In fact, this myth that larger firms offer a cornucopia of higher wages for everyone has become widespread across the ideological spectrum. A belief in this trope is partly why Kevin Williamson at National Review last month insisted that big business is getting the short end of the stick thanks to a romanticizing of small business. But in the age of “too big to fail,” the idea that big firms are America’s punching bag is not terribly convincing. Meanwhile, recent efforts by conservatives and leftists to denounce small businesses as overrated is not an encouraging trend.

Ryan McMaken (@ryanmcmaken) is a senior editor at the Mises Institute.

The Real Story Of The College Admissions Scandal – Third Party Payers

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On Tuesday March 12th, the US Attorney for the District of Massachusetts announced a sweeping indictment regarding a college admissions bribery scandal. Dubbed Varsity Blues, it was an eleven month investigation that examined corrupt admissions practices between 2011 and 2018. The school administrators and coaches that received the most money were from the University of Southern California, Georgetown, Yale and Stanford. In total, there are thirty three parents caught up in the dragnet. Central to all of them is the so-called college admissions consultant Rick Singer, who received a total of $25 million from the parents, which ranged from $100 thousand to $1.2 million. The money was used to bribe coaches such as Yale’s women’s soccer coach, USC’s rowing coach, administrators, and SAT and ACT test proctors.

Merit for Thee, But Not For Me

Fraudulent test scores, athletic achievements, and applications were the tools of the trade. It should be noted that none of the institutions involved were charged, only a few minor actors. However, it should also be noted that there is nothing new about well heeled donors greasing the palms of their university’s endowment to get little Johnny or Suzy admitted as a legacy. The parents in this scandal are largely Hollywood and corporate elites, and the schools are also east coast and west coast elites. Very predictably, all of them are fellow travelers in the progressive left’s equality-by-government-force parade.

The charges levied by federal prosecutors are but a drop in the bucket of the massive fraud being perpetrated by the entire public university system, and it has been going on for decades. The wonderful consequence of this scandal is that it is shedding light on what are hedge funds that happen to have a faculty and old ivy covered buildings. The source of the fraud can be simply attributed to third-party payers, mostly government. This means that there is no efficient price mechanism for tuition and fees. There is no market consisting of entrepreneurs to maintain the integrity of the higher education product. As economics professor Richard Vedder explains in his book Going Broke by Degree:

The impact of third-party financing of education is to move demand curves to the right, raising tuition. This is particularly true of scholarships and loans to students. A Pell Grant or a Stafford Loan increases the student’s ability to pay any given amount in tuition.

A good place to start is the Free Application for Federal Student Aid (FAFSA). The application is a ten page financial colonoscopy, and its objective is to calculate the Expected Family Contribution (EFC). This is the government telling you what you should be paying. If it is determined that the student has a “need,” they can make applications for a Pell Grant, an FSEOG grant, a Stafford Loan, a Federal Student Loan, or the Federal Work-Study Program. If the applicant’s household income or college savings exceed some arbitrary threshold because of diligent work and long-term planning, both noble pursuits, they will be penalized.

Pay the Toll to the Troll

When a university publishes its tuition rates, it is a totally bogus number, much like health care pricing (and for the same reason). For students that qualify for scholarships, financial aid, or grants, the price is much lower, as is the true cost of actual instruction. And the availability of federally guaranteed student loans distorts the pricing mechanism even more. But this is not the big scandal. College administrators, and to a lesser extent college professors, are looting this system for their own enrichment, and it is even worse at so-called research universities. As Vedder explains,

Public choice theorists suggest that nonprofit organization employees try to maximize their satisfaction in life, and they use their power accordingly. As incremental resources become available to universities, administrators have allocated more funds to themselves, providing more administrators to ease their burdens and perhaps raise their own salaries.

For example, between 1977 and 2000, public university expenditures for administration, research, student services, and fellowships increased to 46% from 39% of total expenditures, and expenditures for instruction and plant operation fell to 41% from 48% of the total. In many cases, dormitory and classroom buildings are being neglected in favor of luxury recreation and food service facilities. This is where colleges compete, not on quality of educational product or price. Another problem is that a university’s research accomplishments are measurable and recognized quickly, not so much for instructional excellence, so there is an incentive for undergraduate tuition revenue to fund research instead of instruction.

As Vedder points out, “A big part of the problem is what the great Austrian economist Ludwig von Mises, in a slightly different context, once called the calculation problem. Where profits are not pursued as the primary institutional goal, it is difficult to measure success and failure.” He goes on to explain why universities won’t reduce costs and prices to become more competitive.

First of all, the strategy of cutting administrative costs would meet with some opposition within the university community, especially from top-level administrators. Second, the university president who did this might be ostracized by fellow presidents, who meet regularly at the American Council for Education, a practice that might be considered a violation of anti-trust laws.

As former Secretary of State Henry Kissinger once proclaimed, “University politics are so vicious because the stakes are so small.” But the stakes are huge for the rest of us.

The  Private Sector Solution

Because of the rapid increase in college pricing, there has been a proliferation of for-profit alternatives. These include Phoenix University, Strayer Education, and DeVry University. There is also renewed interest in two-year programs and the kind of vocational training being promoted by Mike Rowe of Dirty Jobs fame. Not only have universities corrupted themselves with worthless academic programs that end in the word “Studies,” they have no skin in the game. Today’s millennial generation has accumulated over $400 billion in student debt. Welcome to March Madness.

But private for-profit schools should also be scrutinized for their reliance on government loans and grants. A private equity firm CEO that specializes in alternative low-cost quality education was trying to partner with a public university, and have a presence on their campus. He was rejected by a senior administrator whose rationale was that he was a mercenary. In the academic community, for-profit is evil, the administrator’s lavish compensation package notwithstanding. When asked why he wanted to do business with a public university in the first place, his answer was “that’s where the money is.” A pristine example of how fractional reserve banking perverts entrepreneurial incentives.

Thanks to last week’s college admissions scandal, the four year college rip-off is getting some badly needed attention.

 

 

The World Has 525 Million Government Bureaucrats, Dedicated To Limiting Freedom And Opportunity For The Other 6.9 Billion People.

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Richard M Ebeling has calculated a deeply depressing statistic. There are about 525 million government bureaucrats on this planet. That’s about 7% of all humans, and 15% of all humans in the global labor force. Their job, as Ebeling puts it, is

supporting,…… overseeing, and enforcing all of those laws, regulations, and redistributive policies determining how the remaining 6.9 billion people on this earth shall live and work.

We who are members of the 6.9 billion rely on our individual knowledge and our individual ability to collaborate and trade with any other individual when both parties voluntarily identify a mutually beneficial exchange. I’ll work for you if you pay me an amount I find acceptable. I’ll buy what you’re selling if you offer me a value I find acceptable. We’ll find a way that’s a win-win for both of us.

How do we make it work among the 6.9 billion? How do we make it possible for a Mom in Minnesota to buy her son a T-shirt made in China that’s transported on a train driven by a Chinese engineer, possibly driving a GE locomotive, to a ship of Liberian registry, which docks in North America and connects to UPS logistics to get the garment to the local Target store.

We know the equation that makes this possible: individual knowledge plus individual freedom. As Ebeling puts it,

Almost 75 years ago, the Austrian economist and Nobel laureate Friedrich A. Hayek published one of the most notable economics articles of the 20th century, “The Use of Knowledge in Society” (1945). The gist of his argument is that matching the social system of division of labor is an accompanying division of knowledge; this knowledge encompasses many different and textured forms that are only acquired and fully known and appreciated by the multitudes of individuals each in his own corner of what is now a truly global society.

If all the knowledge of the world is dispersed among all the minds of all the individuals in the world, how might we somehow make it accessible and useable so all in society may benefit from what others know? Hayek’s answer was the institutions of competitive free markets and prices freely formed by the interactions of supply and demand. The free market price system does it all.

We, the 6.9 billion, communicate – by buying and selling, by consuming and producing, and by saving and investing – what we want and what we might able and willing to supply in return. And the price system does this, Hayek argued, with the minimum information needed for this multitude of market participants to coordinate their actions.

It all works fine until the hubris of politicians and bureaucrats enter the picture; they believe they can design and impose government policies to direct the actions of the 6.9 billion;

where industries and enterprises are to be located and what types and quantities of goods they will be producing; what types of jobs will be made available, in which locations, and satisfying whose consumer and producer demands; which resources and raw materials will be utilized in making what products with which methods of production; and who will earn what income and in what amount compared to others.

Every such decision, when it is made by a bureaucrat, preempts the decisions of the 6.9 billion about what to produce, where, with which methods of production, in what quantities, for whose uses, and at what prices and wages.

The economic, social, and cultural life of the 6.9 billion in society is placed within the straitjacket of what the 750 million in government know and consider good or desirable. Innovations and other adaptations to changing circumstances are confined by the restrictions enforced on private enterprises by the bureaucrats in charge; the directions and forms of production are artificially shaped by fiscal penalties and subsidies and by the spider’s web of regulatory restraints.

People’s abilities to discover and pursue ways of improving their own social and material circumstances by improving those of their fellow human beings through free and open exchange – whether between individuals in one neighborhood or one country or in different parts of the globe –  is hampered if not halted by bureaucratic restrictions.

Humans talk to each other and collaborate with each other through the prices of the global marketplace. Everyone participating in this international marketplace must have a wide latitude of individual liberty to use their personal knowledge, which they possess and others do not. Only through a respect for and practice of such freedom can all the knowledge of the world be effectively utilized to improve the circumstances of the individuals possessing it, as well as others who simultaneously gain from its effective use on their behalf in the form of goods or services they would like to acquire.

Another distinct contribution of Hayek’s was to highlight that competition is a “discovery procedure.” If we already knew the outcome of some competitive activity, what would be the point of holding the competition to begin with? It is precisely because we cannot be certain of the outcome before the competition is held that we see the benefit from the rivalry.

That’s another reason why liberty is such a great means to many of our ends. The freedom of others is a social good because by each having the liberty to decide and act on their own knowledge, the rest of us can be the beneficiaries of what they know and can do that which we could not for ourselves — or at least not as well and as inexpensively as they can for us. We should, at the same time, value an economic system that encourages the competitive discovery process that enables all to benefit from the ideas that someone may come up with that potentially enrich the lives of many if not all of the billions of people in the world.

We take for granted the miraculous ability technology has now given us to travel to and communicate with virtually any place on the planet in little or no time. Yet we allow governments and their bureaucracies to use their coercive powers to constrain us from having the full freedom to create, produce, trade, and travel to pursue our mutually beneficial purposes and cooperative plans to peacefully and productively make our lives better.

What the world needs is more personal freedom and economic liberty so we each may be the voluntary means to each other’s ends through the marketplace of ideas, employments, and products as we use our individual knowledge in our shared global society. The 6.9 billion of us should not be handicapped by what those 525 million bureaucrats can know and do.

Adapted from The Global Economy Desperately Needs Freedom by Richard M Ebeling, polished at AIER.org on 3-6-19, which was, in turn adapted from the Joan Thompson Memorial Freedom Lecture, given at the University of the Bahamas on March 1, 2019.

 

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