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Governments, Major Media Outlets, And Major Institutions Actively Sabotage Innovation And Iconoclastic Entrepreneurship.

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There’s a famous story of a Canadian inventor who developed an inexplicably fuel-efficient carburetor. Men from the oil industry reached out to him. The inventor soon disappeared and he and his carburetor were ultimately never seen or heard from again.

The story is of course patently bogus. Countless variations of it have been told since the early 20th century. The only remarkable part of the story is that it is inspired by a real Canadian inventor, Charles Nelson Pogue, who developed some patents that in no way shape or form paved the way for miraculous gains in fuel efficiency.

Still, it’s highly instructive that this has become an enduring urban legend. After all, an erudite lecture from the late Harvard professor Calestous Juma on “innovation and its enemies” is going to demand a lot more cognitive load. In lieu of that lecture, the urban legend of the miracle carburetor gets the same point across just fine; powerful interests do not always profit from technology getting better and faster.

In professor Juma’s 2016 tour de force historical overview of the various factions and socio-economic forces that impede innovation, he exposes the unholy alliance that often forms between “incumbent” firms on the one hand, and governments and reigning legacy institutions on the other. Juma provides a simple and obvious reason for this alliance: Governments, major media outlets, and other leading institutions obtain the lion’s share of their revenue from monopolistic incumbent firms. Hence, those institutions use regulations, propaganda, and other choice strategies to support incumbent firms, and sabotage iconoclastic entrepreneurs.

The illiberal anti-free expression philosophy that has taken hold across major American institutions is almost certainly a manifestation of those institutions underlying incentives to control innovation. Trying to crush innovative efforts on an ad-hoc, case-by-case basis is tiresome stuff. The US government hasn’t had much luck trying to shut down bitcoin. It’s far more effective to foster an environment with salient cultural restrictions on creativity and inquiry. That way, with a bit of luck, tyrants needn’t worry about blockchain coming into existence in the first place.

The authoritarian excesses of cancel culture cannot be divorced from the deep incentives felt by status quo industries and institutions. The idea that American institutions have been taken over by a principled left-wing ideology, championed by a mob of ideologues, is a misread of the actual situation. Indeed, there is rigorous documentation that American universities as prestigious as Yale are sacking professors who’ve voiced opinions (in jest) that raised the ire of conservatives.

A thorough review of the data on professors who were fired and demoted, over things that they said, confirms that many of them strayed too far to the left of the status quo. The reality of cancel culture is that anyone who offends enough people, or powerful enough people, is putting their career in jeopardy. Certainly, public outrage is a key component of cancel culture. With that said, the leaders of contemporary industries and institutions bear no undue burden on account of rank-and-file folks enabling their unforgiving despotism.

Principled ideology does not underlie the illiberal dysfunction in contemporary institutions. The underlying reasons are far crasser. Major institutions, and the oligopolies that fund them, have a vested interest in keeping a lid on free thought and free expression, simply to preserve the status quo. The highest ranking members of these organizations feel insecure in the face of technical and scientific change. Our current leaders don’t want to find themselves departing for anachronism and obscurity like the Catholic Church and European Nobility two centuries ago.

Authorities like Oxford Martin and the International Monetary Fund have raised concerns about the current ability of monopolistic firms to suppress innovation. Top firms have achieved unprecedented market power in recent decades. Such firms can erect barriers to entry and horde assets like intellectual property, in order to thwart their emerging competitors. The Atlantic and The Verge have brought these concerns before a popular audience.

Lobbying for regulations that block disruptive entrepreneurs is an effective strategy favored by incumbent firms. In the late 19th century, American butter manufacturers successfully lobbied for anti-margarine laws. Cell phones would have been rolled out decades earlier if not for the radio spectrum being restricted, thanks to the lobbying efforts of broadcasters and radio common carriers. Tobacco interests have successfully lobbied against e-cigarettes. Academic research shows that top firms have obtained a healthy return on investment from lobbying and regulations, especially since the 2000s.

Another preferred method for fighting innovation is the use of propaganda. American Express has promoted an outlandish claim that cryptocurrencies are particularly bad for the environment. Thomas Edison famously went to extravagant lengths to make alternating current look dangerous and impractical since he was invested in direct current. Edison’s propaganda campaign included such macabre aspects as electrocuting dogs with alternating current and promoting its use for capital punishment.

It’s ironic because years earlier Edison had to jump through untold political hoops to introduce electric lighting to New York City and overthrow the incumbent—and less efficient—gas lighting industry. However, Edison’s hypocritical actions later in life are consistent with a rational decision-maker following the profit motive. The truth is that innovation is an industry’s double-edged sword; it’s good when it helps your bottom line and bad when it replaces your product line.

Thomas Edison’s meta-strategy is still being employed by Sir James Dyson. Dyson fought a five year legal battle against the EU because Europe’s mandatory energy efficiency tests were set up to make Dyson vacuums look less efficient than the competition. The competition—established German vacuum manufacturers—had lobbied for tests that were essentially rigged in their favor. Aside from those heroics, Dyson has funded credulous research that suited his company’s interests. This was in the context of an ongoing cutthroat PR war between Dyson and the respective manufacturers of paper towels and standard hot-air dryers.

Naturally, Dyson has promoted the company’s patented jet air dryer as the most hygienic and environmentally friendly way for a person to clean their hands. The other two factions responded in kind by promoting their own self-serving narratives. All three factions have funded scientific studies with a suspicious tendency to return results that suit the best interest of the funder. One major study with bona fide independent funding determined that paper towel was the most hygienic hand drying method. Of course, Dyson has funded research that promoted its jet air dryer.

Incumbent firms may not even be especially keen to test the limits of their own innovative prowess. Bell Labs suppressed the recording technology that they developed in the early 1930s. Senior management correctly assumed that such technology would have profound ramifications for society. However, they were being quite paranoid in thinking that people would stop using telephones because of it. These days, firms purposely design technology so that it stops working or at least loses some functionality by a predetermined date. This practice of planned obsolescence is considered a best practice.

The upshot is that monopolistic firms have a vested interest in controlling the wild world of pure research. There’s literally no telling what curiosity-driven research will produce next; it could just as easily bless or smite a given corporation. Industries are compelled to exercise control over the double-edged sword that is innovation.

Innovation is the raison d’être for universities. But not unlike Bell Labs—the birthplace of C++, the transistor, and Unix—universities can’t be expected to be entirely gung-ho about innovation. The university’s shift to authoritarianism stems from fear of a world turned upside down by tech start-ups that don’t care about traditional higher education, and enumerable manifestations of open source. This existential uncertainty strengthens the natural partnership between universities and incumbent oligopolies.

It’s very important to note that the oligarch-institutions alliance will not benefit from a zero growth, zero innovation regime. Unlike ancient kings and priests, their power isn’t predicated upon simply maintaining peace and order. Their success hinges on innovation and growth, and yet, they need growth that they can control.

That’s not to say that the struggling masses would benefit from uncontrolled innovation. The atomic bomb, climate change, mass surveillance, and unclean air all came out of innovation. Innovation is a double-edged sword no matter who wields it, and so whoever takes up that blade must do so with a sense of control and skill. Does this mean that the oligarch-institutions alliance is simply serving its purpose in a functionalist sense?

The age of COVID-19 rips that pretense apart. Humanity cannot afford the sort of antics Dyson engaged in, commissioning research that purposely distracts from the public health risk of blasting aerosolized pathogens all over a washroom. Humanity cannot afford health organizations that dodge important questions, nor ones that give incorrect advice only to retract it after the damage is done. It’s important to note, the symbiotic relationship between powerful corporations that may have a conflict of interest with the facts, and institutions that do a poor job of finding and conveying the facts.

Miraculously, there is hope for innovation. The internet has allowed for the creation of a new intellectual ecosystem that champions innovation. The internet provides a perfect space to leverage the wisdom of the crowd and hash out a solution. What is certain is that we need to fight for a free and open internet, and keep pushing for revolutionary technologies—like blockchain—that empower people.

 

William Tomos Edwards is a writer, philosopher, and the founder of Bright Tapestry Data. This article first appeared at fee.org.

These People Can Not be Trusted To Make Decisions On Our Behalf.

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Opinions vary enormously about the merits of government-imposed lockdowns in response to the coronavirus. Some data get flung here, other data are paraded there, all amidst fiery discussions of the reality and relative importance of concepts that most of us had never heard of until just a few months ago – concepts such as herd immunity, comorbidity, T-cells, and the flattening of curves. Conclusions differing as starkly from each other as night differs from day are drawn, with ardent champions of each conclusion insisting that his or her stance is the one – the only one – justified by “science.”

Science Cannot Tell Us How to Make Trade-offs

By now, it’s become trite (but still true!) in the pages of sensible publications to note that the question of whether or not government should lock down the economy – and, if so, to what extent – is not one that can be answered by science. Science, of course, supplies information that is highly useful for choosing a course of action. How contagious is the coronavirus? How lethal is COVID-19? Do the health effects of this disease strike different age groups differently? What’s the likelihood of a vaccine becoming available within the next year? Within the next two years?

Scientific questions all. And, of course, the ones listed here are only a small sample of the complete set of relevant questions. But ask as many such questions as are appropriate, and answer each as thoroughly and as accurately as would Einstein, and you’ll find no answer to the Big Question: What should government do in response to the coronavirus?

To competently answer this Big Question requires knowledge that science cannot deliver. One of the most important (although not the only) species of knowledge that is scientifically undeliverable is knowledge of the preferences and risk tolerances of hundreds of millions of individuals. Preferences, including that for risk, are subjective and, hence, cannot even in principle be measured objectively. And these preferences change over time as people learn and gain new experiences.

In addition, preferences differ from person to person. The value that Betsy attaches to the freedom to reopen her retail store differs from the value that Barry puts on being able to return to his job on the factory floor. But if Betsy and Barry are under the jurisdiction of the same government, each must suffer or enjoy, as the case might be, whatever policy that government follows. To recognize that reducing the risk of exposure to coronavirus involves trade-offs, and to recognize also that the appropriate trade-off for Betsy almost certainly differs from that for Barry, is to recognize the absurdity of believing that determining the best government policy is a matter of science.

The Track Record Is Not Encouraging

Nevertheless, government must do something regarding COVID and the economy, even if the ‘something’ done is nothing. I confess to strongly leaning in the direction of having government do nothing. And my reason for this strong leaning is summarized by the two words “These people” – as in “What good reason have we to believe that these people in high government positions will make sensible decisions?”

These People are politically driven. Even if (contrary to fact) there were a scientifically determinable single best course of government action in this crisis, what reason have These People given us to believe that they are capable of finding that course and of understanding it? And even if These People could find and understand this scientifically ‘best’ course of action, what reason have we to believe that they possess the political fortitude to implement and stick to it?

More fundamentally, These People have an atrocious track record when it comes to the economy. These People routinely display appalling ignorance of the most basic facts of economic reality.

These People regularly act as if the world is filled with free lunches and as if reality is optional.

When they raise minimum wages, These People deny that low-skilled workers will suffer any negative consequences. When they raise tariffs, These People proclaim that the resulting greater scarcities at home will bring about greater abundance. When they defend rent control, These People, applauding themselves for helping poor families, remain oblivious to the resulting reduced availability and worsening quality of rental housing.

These People concoct in their political petri dishes the economic cancer of occupational licensing and then unleash it on society. In doing so, These People see only the increased incomes of the monopolists whose competitors are killed off. These People are blind to the harm suffered both by consumers and by those producers denied the opportunity to offer their services to the public.

These People defend the government-school monster-monopoly. They pump ever-more taxpayer money into this monster’s maw and insist that the monster’s continuing failures justify not ridding it of its monopoly status but, instead, stuffing it with ever-more taxpayer money.

These People seem not to understand the first thing about incentives.

These People either actively support or do nothing to oppose the calamitous “war on drugs.” This fact shouldn’t surprise, I guess: after all, These People profit from the banana republic practice of civil asset forfeiture – a practice These People declare to be an important “tool” in fighting the “war on drugs.”

Very many of These People believe that adults are children who, absent the kindly intervention of These People, will guzzle too many sugary drinks, ingest too many trans fats, and vape excessively.

These People insist that the typical American is too irresponsible to save for his or her own retirement. Yet many of These People cannot arrange for the government in which they serve to live within its own means. These People spend borrowed money like mad today and, without shame – or, maybe worse, without realizing it – pass the bill on to future generations. These People clearly haven’t the backbone to deny the most frivolous and costly goodies to their constituents. These People, after all, won’t be in office when the bills come due – so what do These People care about what happens in the future?

These People incessantly display utter ignorance of – or contempt for – basic economic realities. These People have done so for generations. Much of what These People say about economic matters is the economic equivalent of voodoo, and even more of what they do on the economic front is destructive. And These People are none too careful with facts: They frequently stoke fears, on the flimsiest of evidence, of looming calamities whenever doing so seems to justify their seizing more power.

What reason is there to trust that These People – whose incentives are never to look past the next election and to ignore consequences that are difficult to see if these consequences are spread over large numbers of individuals – are making a prudently considered trade-off between the lockdown’s costs and its benefits?

Why in the world should we trust with the power to lock down an economy These People?

Donald J. Boudreaux is a professor of economics and former economics-department chair at George Mason University

Eschew News. Embrace Frugality. Fight For Liberty And Freedom. Three Lessons From The Government Lockdowns.

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Many millions of people have spent the last four months in sadness and depression. It’s hard to watch the world shattered by the bad behavior of governments – and to see too many among us cheer the destruction – and not feel a sense of despair.
And yet the human mind is an incredible thing. If we work at it, we can figure out a good takeaway from terrible events. Doing so – it takes effort – can brighten the spirits and point the way forward out of the morass.I’ve taken three positives out of this experience.
First, I’m completely over my decades-old addiction to news. I always loved the news, even from when I was a kid. For years, I read the Washington Post with my morning coffee. Then I switched to the New York Times, and learned how to tease truth out of their biased but comprehensive coverage. Then I added the Wall Street Journal. When home assistants came along, I programmed mine to play 8 hours (if I needed it) of nonstop news: BBC, NPR, NYT, and so many others. It felt like such a luxury.The turning point came for me on February 28, 2020, when the New York Times podcast (which used to be my favorite) sent out a piece of panic porn that predicted that the coronavirus would kill 8.25 million Americans, or “six of your friends.”It came as a shock suddenly to realize that they turned over their main podcast to whipping up a public fear to back a lockdown. Explicitly. This was the agenda. They more or less admitted it. I knew at that moment that the paper had signed up to contribute to a malicious plot to enact an unprecedented social/political experiment.The Times led the way. Pretty soon, the mainstream media became universally pro-lockdown, probably for political reasons. A widespread and mild virus, dangerous mostly to a particular demographic with low life expectancy and nearly harmless to everyone else, was rendered daily and hourly as a new bubonic plague.

I might have listened for a couple of more days. Then I stopped. The scales fell from my eyes. I decided, suddenly and shockingly for me, to stop filling my head with nonsense. The “news” was not getting me information to help me understand the world; it was clouding my ability to think clearly. A few months later, like clockwork, the revolution at the New York Times was complete when its opinion editor, hired to diversify the opinions in the paper, was unceremoniously fired for diversifying opinion in the paper. (The critical theory crowd has discovered new love for the right of institutions to fire people, contradicting decades of left-wing opposition to the same.)

I started getting my information by digging for it, finding reliable accounts on Twitter to follow, spending my time on statistical pages, and otherwise finding facts, reading history, and educating myself more deeply rather than just trust the media.

An exception here: the Wall Street Journal, which performed heroically throughout.

At this point, I can say that I’m never going back. My addiction to “the news” is over. I’m better off for it. It was painful but I’m glad.

Some readers are now saying: it’s about time. The news has always been about getting eyes and ears and selling advertising. It’s just entertainment. It became especially true with the 24-hour news cycle.

I don’t disagree. I should have given it up years ago. Even now, I can almost immediately tell the difference between a person who watches TV news or listens to mainstream radio vs. those are actually informed about what’s going on.

In any case, I count this as a real victory, courtesy of the lockdown.

Second, I’ve saved a tremendous amount of money from not going to restaurants, bars, and movies. I’m sad for all the places that have closed. It’s unjust and evil. But from my own perspective, I’ve learned to live a good life while spending probably 30% less than I did before. I’ve fallen back in love with cooking, homespun cocktails, and reading.

It’s all to the good. I doubt that I will go back, now that I can make all my favorite meals at a fraction of the price I used to pay. Now that things are opening, I perhaps will make my way out to some restaurants but I doubt I will ever go back to the way things were.

Third, I’ve learned a hugely valuable lesson that civilization can be dismantled in a matter of months. It can happen again if there are not passionate voices out there who understand its basis and can defend it with intellectual integrity, facts, and rhetorical power. I never imagined that anything like this could happen. I thought it was impossible with a Constitution, a tradition of liberty, and a people who would never allow human rights to be taken away so suddenly and cruelly. It did happen, and knowing this has given me renewed passion for my lifetime project of loving, understanding, and spreading the idea of liberty.

It’s remarkable how it all happened.

The government and its champions took on a subject about which the public is today largely ignorant and fearful – a virus and the claim that 8.25 million Americans will die – and exploited that ignorance to cause people to give up their rights. Even though this whole thing was mapped out 14 years ago, perhaps as a way of finding some rationale for continued and growing presence of government in our lives despite its otherwise growing irrelevance, many on the pro-liberty side of things were caught off guard and didn’t know how to respond.

Many people – even people employed with the job of “promoting liberty” – just went silent. For months. Just when their voices were most needed. That was a tragedy. I’ll be forever grateful to the pages of AIER which at times in these months felt like a lone voice of sanity out there.

This third lesson – to be grateful for our liberties and civilization and never think they can be taken for granted – is perhaps the most valuable. I’m thinking too that my experience in learning these lessons is not unique. I suspect that many intelligent people have lost faith in the news, rediscovered frugality, and found a new way to commit themselves to the defense of liberty and human rights. In the coming days, we are going to need stronger and smarter minds to fight the battles of the future. These terrible months might have been the preparation we need to make sure that truth and freedom eventually prevail.

Jeffrey A. Tucker is Editorial Director for the American Institute for Economic Research, where this article first appeared.

Government Coercion

The State Isn’t Going Crazy; It’s Going State.

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15 years ago I published an essay entitled “The Thing Itself,” which argued that state power and “the law” were blunt instruments. I worried that we had lost sight of the limits of state capacity. The years since I made that claim have not been reassuring. The past six months have convinced me I need to reprise and refresh the argument, because we have clearly learned nothing.
The ”Thing Itself” is a reference to a mid-18th century anonymous tract by Edmund Burke, in which he discusses “natural” and “artificial” government.

In vain you tell me that Artificial Government is good, but that I fall out only with the Abuse. The Thing! the Thing itself is the Abuse! Observe, my Lord, I pray you, that grand Error upon which all artificial legislative Power is founded.

It was observed, that Men had ungovernable Passions, which made it necessary to guard against the Violence they might offer to each other. They appointed Governors over them for this Reason; but a worse and more perplexing Difficulty arises, how to be defended against the Governors? Quis custodiet ipsos custodes?

In vain they change from a single Person to a few. These few have the Passions of the one, and they unite to strengthen themselves, and to secure the Gratification of their lawless Passions at the Expence of the general Good. In vain do we fly to the Many. The Case is worse; their Passions are less under the Government of Reason, they are augmented by the Contagion, and defended against all Attacks by their Multitude.

The essay was a satire of Lord Bolinbroke’s argument about religion, and clearly does not reflect Burke’s mature perspective. But the argument now seems prescient: some people think government is the only possible solution to every problem that comes up. They “fall out only with the abuse,” saying that we need better people in office. If only we can elect “good” people, the argument goes, government itself will be good.

Others (and I am obviously of this view) would regard government as, at best, a difficult, dangerous, and exigent tool for accomplishing shared goals. Worse, once state power is invoked, there is no reason to expect government actors to limit themselves to “shared goals;” instead, the personal goals of the rulers dominate. Any government powerful enough to do what is desired must be expected to do more, and other, than desired.

One cannot escape the dilemma by reforms, the manipulation of structure. The monarch (“a single person”) becomes an oligarchy. But those few have the passions of the one, meaning that elites unite around their shared interests, and use the tax “commons” to finance their schemes.

It might seem that if we could only get power in the hands of “the people” we would finally have reached Nirvana. But “In vain do we fly to the Many, The Case is worse; their Passions are less under the Government of Reason, they are augmented by the Contagion, and defended against all Attacks by their Multitude.”

Wow: “they are augmented by the Contagion.” Burke is referring to populism, but the combination of populism and fears of a global pandemic fit the model pretty well.

In the essay I wrote, I told the story of a federal government scientist who entered a DC Metro station eating a candy bar. A DC Transit cop noticed this (they were passing on escalator, down vs. up) and admonished the scientist. Scientist nodded, ate the last bite of the candy bar, and headed toward the subway platform.

The cop hurried back down the escalator, and aggressively confronted the scientist. (Both cop and scientist were African-American women, if it matters). The cop roughed up the scientist, and then aggressively searched her, going so far as to put her hand up and feel around inside her bra.

Some people at the time thought the cop had just gone crazy. That view makes the mistake of “falling out only with the abuse.” This was not an abuse of the system; it is the system. To paraphrase Chris Rock, “That cop didn’t go crazy. That cop went cop!”

What I mean is that violence and literal enforcement of the law is not a distortion or perversion of state power, but is rather the essence of state power. The law said “no eating.” The person was eating. That person must be aggressively prevented from flouting the law. I’m not sure exactly what the scientist should have done, since she couldn’t spit out the candy bar. But when she ate the rest of the candy bar, after being told that eating was illegal, the state had to come down hard.

In the past few weeks, we have seen videos of police violence targeted at civilians. I started to say “innocent civilians,” but that’s not true. In an environment where a police order to “get off the streets, move away” has been issued, the failure to move away is very much like popping the rest of the candy bar in your mouth. The state, in the form of police violence, is asserting its power to control the population. Once you begin to see like a state, you recognize that failing to use violence to exert control would deny the nature, and in fact the very self-justification, of the enforcement power.

A government does other things also, of course, but the ability to survive and to use violence to force citizens to obey, is the core function of the state. Or, “the thing itself.” As Max Weber (1921)put it:

What is a ‘political’ association from the sociological point of view? What is a ‘state’? Sociologically, the state cannot be defined in terms of its ends. There is scarcely any task that some political association has not taken in hand, and there is no task that one could say has always been exclusive and peculiar to those associations which are designated as political ones: today the state, or historically, those associations which have been the predecessors of the modern state. Ultimately, one can define the modern state sociologically only in terms of the specific means peculiar to it, as to every political association—namely, the use of physical force…

…[A] state is a human community that (successfully) claims the monopoly of the legitimate use of physical force within a given territory. Note that ‘territory’ is one of the characteristics of the state. Specifically, at the present time, the right to use physical force is ascribed to other institutions or to individuals only to the extent to which the state permits it. The state is considered the sole source of the ‘right’ to use violence. Hence, ‘politics’ for us means striving to share power or striving to influence the distribution of power, either among states or among groups within a state. (pp. 396-7; emphasis added).

This brings us to the point, and to the problem. If you want to use the state to accomplish your goals, you cannot “fall out only with the abuses.” You have to recognize that it’s the nature of the state, the thing itself, to use violence against its own citizens.

Notice that I am not blaming the police, at least not directly. In my article 15 years ago, I pointed out that we had created a set of laws, not manners or cultural norms, but actual laws, that forced the police into the position of being baby-sitters and wardens of citizens. Once you recognize that the police in all those videos are focusing violence against citizens who have done nothing but disobey an order to disperse, you realize that “better police” is not the answer.

The only answer is “smaller state.” Because the excessively large state isn’t going crazy, it’s just going state.

Michael Munger is a Professor of Political Science, Economics, and Public Policy at Duke University and Senior Fellow of the American Institute for Economic Research.

The Case For Optimism: Post COVID-19 Is The Time To De-Regulate And Get Rid Of The Special Interest Leeches Who Drain Our Economy.

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Things seem grim. But there is cause for optimism, perhaps even enthusiasm, for the adjustment process that we face “after the virus.” The source of that optimism, surprisingly, is a very pessimistic book, The Rise and Decline of Nations by Mancur Olson (Yale, 1982).
Olson argued that there is a strange dynamism in societal success, but an unavoidable accretion of forces that leech away the ability to sustain success. Eventually, great civilizations fail. Over the time of quarantine here in North Carolina, I read Edward Gibbon’s famous Decline and Fall of the Roman Empire. It was better than I expected, full of examples of the problems of public choice and matching private incentives and public disaster.Olson extends the logic decline to other nations, noting that there appears to be what we might now call a “common pool resource” problem in budgets and the energy of the public sector. Over time, more and more latent groups become organized interests, and they use the political power of organization to secure rents from the public purse. The problem is that once rents are secured, it is essentially impossible to take them back. Large latent groups may be difficult to organize to eliminate rents, because the individual benefits are negligible.But the real problem is that organized groups will fight to the death to preserve their ill-gotten portion.
The reason is Gordon Tullock’s simple but powerful insight about the “transitional gains trap.” Once a rent or entitlement is secured by an organized interest, there is a one-time wealth increase. But the expectation of the rent is capitalized in asset prices immediately: land prices, or the price of a taxi medallion or occupational license, increases to the point where the owner makes only a normal return. But the activity is expensive, and sucks out some of the life juices of the economy.Individually, this leech-like rent-seeking has only limited impact; that’s why each separate act of thievery can succeed: the tiny marginal impact has costs that are so widely dispersed as to appear invisible. But in the aggregate, as with any common pool resource, the effect of each separate taking adds up to collapse the society. Interest groups “overfish” the budget, and there is nothing left. California cities have no effective budget remaining, after they pay the inflated pension obligations snatched by public unions. Overall, the “ratchet” of government growth, which once expanded in an area cannot be cut, is constantly forcing nondiscretionary spending upward, leaving less and less ability to respond to needs of infrastructure and normal services.

The Upside: Saltation

The reader may be wondering, “Jeez, where’s the optimism? This sounds terrible.” And that’s right, it is terrible. My optimism is more of the “silver lining” than the “what good luck!” sort. There has always been a tendency among the economically illiterate (and I have to include Paul Krugman among those) to see destruction as an economic stimulus. Frederic Bastiat long ago identified this as the “broken window” fallacy, but it won’t disappear: every time there’s a catastrophe, someone says, “Well, actually….” No. NO, NO, NO. Destruction does not create wealth.

Except that sometimes, destruction may create an opportunity for future growth, if the destruction includes the piled-up layers of interest group guano that coats the gears of the system. We sometimes talk about technology as having this function; in my book (Platforms: Perils and Promise, IEA 2020) I give the example of how GPS has made a huge amount of human capital nearly worthless.

For decades, an entry license to drive a black cab in London required the ability to recite from memory the street location of and directions to any address in the city. And the driver needed to know at least a snippet about every tourist stop in the city. As a result, the salaries of black cab drivers were high, and it was difficult to increase the number of drivers in response to changes in demand.

But the value of what drivers called “The Knowledge” was destroyed in less than a decade. A smart phone with GPS, combined with increasingly accurate apps such as WAZE that give constantly updated information about construction and accidents en route, means that rides can be provided at a 50% discount compared to black cabs, with little difference in arrival times. I have called this kind of change “saltation,” meaning a re-sorting or leapfrogging transformation.

Which brings us back to Mancur Olson. He noticed that catastrophes caused saltation in institutions, because all the layers of interest group rent commitments were breached. Either the group did not exist in the same form, or political change was so dramatic that their implicit and morally illicit commitments to a share of taxpayers’ efforts were no longer enforceable. The most obvious way of breaking the stranglehold of organized interests was war, according to Olson. And not winning a war; that likely makes things worse. The “solution” is to lose a war, catastrophically, so that the society gets to start over free of the accretion of parasites and second-handers that had thrived on the work and thrift of others.

On p. 76 of Rise and Decline, Olson argues that the reason that Germany and Japan did so well after World War II is that they lost completely and abjectly, and had new institutions imposed from outside in ways that abrogated the commitments that would have been honored if choices had been made internally. Olson points out that the other major Axis power, Italy, managed a negotiated peace that preserved its institutions, and the result was a crippled and anemic postwar recovery compared to Germany and Japan.

Olson is quite careful to avoid the “broken window fallacy,” I should note. He does not conclude, “And therefore complete destruction following a lost war is what we want!” His point is that there is little hope for normal political processes to break up the interest group rent carnival short of losing a war, which means that the decline of nations is inevitable: either their dynamic energies are slowly choked off by institutional sclerosis (bad), or they lose a war (very bad now, later good, but overall more bad than good).

But there it is. That is the optimistic part. I would never have advocated for the intentional destruction of many of the supply chains, cronyist partnerships, and cozy iron triangles that the state has nurtured in the past 50 years. Right or wrong, though, we did that. Our economy in the fall of 2020 will look more like an economy emerging from a bitter war than any time since the fall of 1945. All those interest group commitments that normally would be sapping our national vitality will be up for grabs.

Our systems of occupational licensing—always a mook’s game, but now clearly preventing rapid response to emergencies in other states—drug and medical equipment certification, and regulating employment in the “gig” economy, have all been shown to be catastrophic. The economic justification for these grants and set-asides was never persuasive. Let’s get rid of them! Olson’s argument is that “a fresh start” on regulation is actually a great tonic for economic anemia.

The point is clear: the economy lost the war. Many of our industries and normal ways of doing business got blown up. That’s done; we lost a war we did not even want to fight. But it happened, and now we have an opportunity for saltation. We can make the rebuilt political economy better than the bloated, creaky rent-selling machine that we had at the start of 2020.

Michael Munger is a Professor of Political Science, Economics, and Public Policy at Duke University and Senior Fellow of the American Institute for Economic Research.

We Permit Government To Make Us Fearful, Then Let Them Exploit Our Fear To Ratchet Up Their Power.

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In the political response to the Covid-19 pandemic, everything is proceeding just as economist Robert Higgs has foreseen. But that doesn’t make it any easier for him to watch it. “I have an overwhelming feeling that I am reliving a bad experience I’ve lived through several times before, only this time it’s worse,” Higgs says. “I have no doubt that even if the current situation plays out in the best imaginable way, it will leave an abundance of legacies for the worse so far as people’s freedom is concerned.”

Higgs sees government, as usual, vastly expanding during the crisis, and he’s sure that it will not shrink back to its former scale once the crisis is over. It never does, as he famously documented in his 1987 book, Crisis and Leviathan: Critical Episodes in the Growth of American Government, and in later works exploring this “ratchet effect.”

By surveying the effect of wars, financial panics, and other crises over the course of a century, Higgs showed that most government growth occurs in sporadic bursts during emergencies, when politicians enact “temporary” programs and regulations that never get fully abolished. New Deal bureaucracies and subsidies persisted long after the Great Depression, for example, and the U.S. military didn’t revert to its prewar size after either of the world wars.

Besides charting the growth of government, Higgs identified the fundamental psychological cause. He recognized the political significance of the negativity effect, also called the negativity bias—the universal tendency of negative events and emotions to affect us more strongly than positive ones.

In our recent book on this bias, The Power of Bad, social psychologist Roy Baumeister and I drew on Higgs’s work to argue that the greatest problem in politics is what we call the Crisis Crisis—the never-ending series of crises, real or imagined, that are hyped by the media and lead to cures too often worse than the disease. It’s a perpetual problem because it’s so deeply rooted in human psychology, as Higgs explained in a 2005 essay, “The Political Economy of Fear.”

“To tell people not to be afraid is to give them advice that they cannot take,” Higgs wrote. “Our evolved physiological makeup disposes us to fear all sorts of actual and potential threats, even those that exist only in our imagination. The people who have the effrontery to rule us, who call themselves our government, understand this basic fact of human nature. They exploit it, and they cultivate it.” Rulers instinctively heed Machiavelli’s advice: “It is much safer to be feared than loved”—a sixteenth-century formulation of the negativity effect.

“Without popular fear, no government could endure more than twenty-four hours,” Higgs wrote, explaining how the earliest kingdoms were founded by warriors who augmented their authority with the help of religious leaders. “The warrior element of government puts the people in fear for their lives, and the priestly element puts them in fear for their eternal souls. These two fears compose a powerful compound—sufficient to prop up governments everywhere on earth for several millennia.”

Then, in the nineteenth century, came new fears to justify the creation of the welfare state. As Higgs noted: “People were told that the government can and should protect them from all sorts of workaday threats to their lives, livelihoods, and overall well-being—threats of destitution, hunger, disability, unemployment, illness, lack of income in old age, germs in the water, toxins in the food, and insults to their race, sex, ancestry, creed, and so forth. Nearly everything that the people feared, the government then stood poised to ward off.”

As eager as politicians are to expand the government, in normal times they’re able to do so only slowly. People always fear tax increases, and a proposal to benefit one special interest will typically be opposed by another, creating a political logjam. But when a new threat like Covid-19 suddenly arises, the logjam is broken, as Higgs described in a 2009 essay, “The Political Economy of Crisis Opportunism.”

“A crisis,” Higgs observed, “alters the fundamental conditions of political life. Like a river suddenly swollen by the collapse of an upstream dam, the ideological current becomes bloated by the public’s fear and apprehension of impending dangers and its heightened uncertainty about future developments. Bewildered people turn to the government to resolve the situation, demanding that government officials ‘do something’ to repair the damage already done and prevent further harm.”

Politicians—aided by media hysteria—seize the opportunity to dispense funds, create new programs, and enact proposals that had languished before the crisis. The current pandemic, for instance, has given protectionists a new excuse for restricting international trade. Progressives in Congress have tried to create new protections for workers and immigrants, subsidies for alternative energy, and mandates for diversity programs. Trillions have been added to the national debt with little debate because criticism becomes taboo during a crisis. During World War II, the conversation stopper was, “Don’t you know there’s a war on?” Today it’s repurposed by substituting “pandemic” for “war,” and accompanied by solemn declarations like, “A human life is priceless.”

The Covid-19 lockdown measures are supposed to be temporary, but Higgs expects them to endure due to another consequence of the negativity effect: because bad events have more impact than good ones, people strive harder to avoid losses than they do to achieve gains. As a result, any new government program typically creates a powerful coalition committed to its preservation: an “iron triangle” consisting of a legislative committee, an administrative bureaucracy, and a group of special interests reaping benefits from the program.

“Attempts to eliminate or diminish emergency programs,” Higgs wrote, “run up against a fundamental principle of political action: People will fight harder to keep an established benefit than they will fight to obtain an identical benefit in the first place. This asymmetry assists every effort to hang onto iron triangles created or enlarged during a crisis.”

Could this crisis turn out differently? Fans of smaller government have been cheered by the suspension of hundreds of harmful regulations during the pandemic, such as the Food and Drug Administration’s rules slowing test development and the laws restricting telemedicine and preventing doctors from working outside their home states. Couldn’t some of these rules disappear permanently now that people have seen the alternative? Maybe, but Higgs is convinced that the overall result will still be dreadful.

“I believe the crisis will produce a net increase in the government’s size, scope, and power,” he says. “That includes regulations. Some may be scrapped, but those that have been set aside in response to the crisis will likely be reinstated after the crisis has waned, because the political forces that caused them to be created in the first place will still exist—same special-interest lobbies, same politicians selling favors to the highest bidder, same capacity to slip anti-competitive clauses into huge statutes, and so forth.” The only way to curtail such overreach, he adds, is to “shrink the power of the state, and it will be a cold day in hell when that happens.”

It certainly won’t happen any time soon, given the unprecedented shutdown of the economy and abrogation of civil liberties—mostly done with widespread approval, according to public-opinion surveys. It may seem astonishing for Americans to surrender their freedom so willingly, but Higgs isn’t surprised.

“Americans, for the most part, are so liable to being terrified by government agencies and their kept media that they lose almost all judgment when told that a horrible threat of mass death hangs over them,” he says. “I foresee the worst depression since the Great Depression right around the corner. That alone would be enough to bring forth a host of bad government policies with long-lasting consequences. Many such policies have already been adopted. But much more awaits us along these lines.”

I fear he’s right, but at least we have his warnings to guide us in this crisis. While the negativity effect is wired into the primal region of our brains, we also have the rational capacity to override it. We could learn from history—and gain a new appreciation for a much-quoted line in Franklin D. Roosevelt’s first inaugural address. When FDR said that the only thing we have to fear is fear itself, he was offering excellent but incomplete advice. Besides fearing our own irrationality, we should fear leaders who exploit it during a crisis.

John Tierney is a contributing editor of City Journal, a contributing science columnist for the New York Times, and co-author of The Power of Bad: How the Negativity Effect Rules Us and How We Can Rule It.

Breakthrough! Wisconsin Supreme Court Slams State Executive For Overstepping Constitutional Bounds. More please!

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Wisconsin’s Supreme Court decided by a 4-3 vote on Wednesday May 13, 2020 to strike down the state’s “Safer at Home” order, its COVID-19 economic lockdown in other words. It did so completely, immediately, and unequivocally. You can read the decision and all the concurrences and dissents here.
Many moving pieces regarding constitutional issues like separation of powers and delegation of legislative powers to officers of the executive branch suffuse the decision. The concurring justices, however, cut through all of that and kept their eyes on the key Constitutional issues, many of which have been discussed by our friends at AIER here and here.Below are key excerpts from the decision. “Palm” refers not to a part of a hand but to the surname of the Wisconsin official whose actions the court declared illegal. Although the decision directly frees only Wisconsin, the principles are broadly applicable to the national government and all US states. Yes, even California.While many states have already loosened their lockdowns enough to avoid a similar judicial smackdown, it is important to declare unconstitutional all measures that crossed the line from legitimate public health order (which again, may include quarantine [the sick], cordon sanitaire [infected districts], or protective sequestration [uninfected districts] depending on circumstances) into tyrannical power grab so, like the unconstitutional internment of Americans during World War II, it never happens again.

***

We do not conclude that Palm was without any power to act in the face of this pandemic. However, Palm must follow the law that is applicable to state-wide emergencies. We further conclude that Palm’s order confining all people to their homes, forbidding travel and closing businesses exceeded the statutory authority of Wis. Stat. 252.02 upon which Palm claims to rely.

***

Palm points to statutes that she asserts give her broad authority to impose regulation; but it does not follow she can impose regulation without going through a process to give people faith in the justness of the regulation. However, under Palm’s theory, she can ‘implement all emergency measures necessary to control communicable diseases,’ … even at the expense of fundamental liberties, without rulemaking. That interpretation is constitutionally suspect.

***

Article I, Section 1 of the Wisconsin Constitution provides that ‘All people are born equally free and independent, and have certain inherent rights; among these are life, liberty and the pursuit of happiness; to secure these rights, governments are instituted, deriving their just powers from the consent of the governed.” [If this sounds familiar, see the Declaration of Independence.]

***

At times, legislation is enacted that infringes on a person’s rights despite these front-end procedures [separation of powers; bicameralism], however, for that we have judicial review.

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When a grant of legislative power is made, there must be procedural safeguards to prevent the “arbitrary, unreasonable or oppressive conduct of the agency.”

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Palm cannot point to any procedural safeguards on the power she claims.

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[Palm’s argument about being able to fine and imprison those who break her order] is without legal foundation and ignores more than 50 years of Wisconsin law.

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Constitutional law has generally permitted the Governor to respond to emergencies without the need for legislative approval. … But the Governor’s emergency powers are premised on the inability to secure legislative approval given the nature of the emergency. … In the case of a pandemic, which lasts month after month, the Governor cannot rely on emergency powers indefinitely.

***

Crimes created by the Legislature in statutes must have specificity in order to be enforceable. … Because Palm fails to understand the specificity necessary to a valid criminal statute, she also fails to understand that no less specificity is required of a rule to which criminal penalties are assigned.

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Order 28 exceeds the [statutory] authority to quarantine those infected or suspected of being infected. … This directive is not based on persons infected or suspected of being infected.

***

She cites no authority for this vast seizure of power.

***

As the United States Department of Justice has recently written in a COVID-19-related case raising constitutional issues, “There is no pandemic exclusion … to the fundamental liberties the Constitution safeguards.”

***

The concurring opinion of Justice Rebecca Bradley is also a brilliant exposition of what used to be considered Civics 099 (i.e., high school level stuff) but apparently today requires detailed explanation, even to state supreme court justices, the dissent of one of whom Bradley eviscerates in footnote 3: “Spurning more than two centuries of fundamental constitutional law as well as the Wisconsin Constitution’s guarantee of liberty, Justice Brian Hagedorn shockingly proclaims ‘the judiciary itself must never cast aside our laws or the constitution itself in the name of liberty. … Setting aside the self-contradictory nature of that statement, Justice Hagedorn’s 53-page opinion contains no constitutional analysis whatsoever.” One assumes Hagedorn, like many of us, is suffering from Lockdown Brain.

Look for more court decisions in the weeks to come, hopefully ones where the Bradleys outnumber the Hagedorns.

Robert E. Wright is the Nef Family Chair of Political Economy at Augustana University in Sioux Falls, South Dakota.

What If They Gave A Pandemic And No-One Stayed Home?

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In my lifetime, there was another deadly flu epidemic in the United States. The flu spread from Hong Kong to the United States, arriving December 1968 and peaking a year later. It ultimately killed 100,000 people in the U.S., mostly over the age of 65, and one million worldwide.

Lifespan in the US in those days was 70 whereas it is 78 today. Population was 200 million as compared with 328 million today. It was also a healthier population with low obesity. If it would be possible to extrapolate the death data based on population and demographics, we might be looking at a quarter million deaths today from this virus. So in terms of lethality, it was as deadly and scary as COVID-19 if not more so, though we shall have to wait to see.

“In 1968,” says Nathaniel L. Moir in National Interest, “the H3N2 pandemic killed more individuals in the U.S. than the combined total number of American fatalities during both the Vietnam and Korean Wars.”

And this happened in the lifetimes of every American over 52 years of age.

I was 5 years old and have no memory of this at all. My mother vaguely remembers being careful and washing surfaces, and encouraging her mom and dad to be careful. Otherwise, it’s mostly forgotten today. Why is that?

Nothing closed. Schools stayed open. All businesses did too. You could go to the movies. You could go to bars and restaurants. John Fund has a friend who reports having attended a Grateful Dead concert. In fact, people have no memory or awareness that the famous Woodstock concert of August 1969 – planned in January during the worse period of death – actually occurred during a deadly American flu pandemic that only peaked globally six months later. There was no thought given to the virus which, like ours today, was dangerous mainly for a non-concert-going demographic.

Stock markets didn’t crash. Congress passed no legislation. The Federal Reserve did nothing. Not a single governor acted to enforce social distancing, curve flattening (even though hundreds of thousands of people were hospitalized), or banning of crowds. No mothers were arrested for taking their kids to other homes. No surfers were arrested. No daycares were shut even though there were more infant deaths with this virus than the one we are experiencing now. There were no suicides, no unemployment, no drug overdoses.

Media covered the pandemic but it never became a big issue.

As Bojan Pancevski in the Wall Street Journal points out, “In 1968-70, news outlets devoted cursory attention to the virus while training their lenses on other events such as the moon landing and the Vietnam War, and the cultural upheaval of the civil-rights movements, student protests and the sexual revolution.”

The only actions governments took was to collect data, watch and wait, encourage testing and vaccines, and so on. The medical community took the primary responsibility for disease mitigation, as one might expect. It was widely assumed that diseases require medical not political responses.

It’s not as if we had governments unwilling to intervene in other matters. We had the Vietnam War, social welfare, public housing, urban renewal, and the rise of Medicare and Medicaid. We had a president swearing to cure all poverty, illiteracy, and disease. Government was as intrusive as it had ever been in history. But for some reason, there was no thought given to shutdowns.

Which raises the question: why was this different? We will be trying to figure this one out for decades.

Was the difference that we have mass media invading our lives with endless notifications blowing up in our pockets? Was there some change in philosophy such that we now think politics is responsible for all existing aspects of life? Was there a political element here in that the media blew this wildly out of proportion as revenge against Trump and his deplorables? Or did our excessive adoration of predictive modeling get out of control to the point that we let a physicist with ridiculous models frighten the world’s governments into violating the human rights of billions of people?

Maybe all of these were factors. Or maybe there is something darker and nefarious at work, as the conspiracy theorists would have it.

Regardless, they all have some explaining to do.

By way of personal recollection, my own mother and father were part of a generation that believed they had developed sophisticated views of viruses. They understood that less vulnerable people getting them not only strengthened immune systems but contributed to disease mitigation by reaching “herd immunity.” They had a whole protocol to make a child feel better about being sick. I got a “sick toy,” unlimited ice cream, Vicks rub on my chest, a humidifier in my room, and so on.

They would constantly congratulate me on building immunity. They did their very best to be happy about my viruses, while doing their best to get me through them.

If we used government lockdowns then like we use them now, Woodstock (which changed music forever and still resonates today) would never have occurred. How much prosperity, culture, tech, etc. are losing in this calamity?

What happened between then and now? Was there some kind of lost knowledge, as happened with scurvy, when we once had sophistication and then the knowledge was lost and had to be re-found? For COVID-19, we reverted to medieval-style understandings and policies, even in the 21st century. It’s all very strange.

The contrast between 1968 and 2020 couldn’t be more striking. They were smart. We are idiots. Or at least our governments are.

[Note an earlier version of this article featured a photo not from Woodstock 1969. This photo from the montage at the Atlantic.]

Jeffrey A. Tucker is Editorial Director for the American Institute for Economic Research. 

Do Lockdowns Save Many Lives? In Most Places, the Data Say No.

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Do quick shutdowns work to fight the spread of Covid-19? Joe Malchow, Yinon Weiss and I wanted to find out. We set out to quantify how many deaths were caused by delayed shutdown orders on a state-by-state basis.

To normalize for an unambiguous comparison of deaths between states at the midpoint of an epidemic, we counted deaths per million population for a fixed 21-day period, measured from when the death rate first hit 1 per million—e.g.,‒three deaths in Iowa or 19 in New York state. A state’s “days to shutdown” was the time after a state crossed the 1 per million threshold until it ordered businesses shut down.

We ran a simple one-variable correlation of deaths per million and days to shutdown, which ranged from minus-10 days (some states shut down before any sign of Covid-19) to 35 days for South Dakota, one of seven states with limited or no shutdown. The correlation coefficient was 5.5%—so low that the engineers I used to employ would have summarized it as “no correlation” and moved on to find the real cause of the problem. (The trendline sloped downward—states that delayed more tended to have lower death rates—but that’s also a meaningless result due to the low correlation coefficient.)

No conclusions can be drawn about the states that sheltered quickly, because their death rates ran the full gamut, from 20 per million in Oregon to 360 in New York. This wide variation means that other variables—like population density or subway use—were more important. Our correlation coefficient for per-capita death rates vs. the population density was 44%. That suggests New York City might have benefited from its shutdown—but blindly copying New York’s policies in places with low Covid-19 death rates, such as my native Wisconsin, doesn’t make sense.

Sweden is fighting coronavirus with common-sense guidelines that are much less economically destructive than the lockdowns in most U.S. states. Since people over 65 account for about 80% of Covid-19 deaths, Sweden asked only seniors to shelter in place rather than shutting down the rest of the country; and since Sweden had no pediatric deaths, it didn’t shut down elementary and middle schools. Sweden’s containment measures are less onerous than America’s, so it can keep them in place longer to prevent Covid-19 from recurring. Sweden did not shut down stores, restaurants and most businesses, but did shut down the Volvo automotive plant, which has since reopened, while the Tesla plant in Fremont, Calif., was shuttered by police and remains closed.

How did the Swedes do? They suffered 80 deaths per million 21 days after crossing the 1 per million threshold level. With 10 million people, Sweden’s death rate‒without a shutdown and massive unemployment‒is lower than that of the seven hardest-hit U.S. states—Massachusetts, Rhode Island, Louisiana, Connecticut, Michigan, New Jersey and New York—all of which, except Louisiana, shut down in three days or less. Despite stories about high death rates, Sweden’s is in the middle of the pack in Europe, comparable to France; better than Italy, Spain and the U.K.; and worse than Finland, Denmark and Norway. Older people in care homes accounted for half of Sweden’s deaths.

We should cheer for Sweden to succeed, not ghoulishly bash them. They may prove that many aspects of the U.S. shutdown were mistakes—ineffective but economically devastating—and point the way to correcting them.

Mr. Rodgers was founding CEO of Cypress Semiconductor Corp.

How We Permit Government To Increase Its Spending And Its Power During Crises, And We Demand Nothing Back Afterwards.

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My intrepid Mercatus Center colleague – and fellow AIER columnist – Veronique de Rugy e-mailed to me recently this lament:

Even acknowledging the public health crisis, in many cases on dubious authority state and local officials are closing stores and imposing all sorts of restrictions on people. Trump also is obviously not thinking very carefully about what is constitutional for him to do or not. For instance, he has no powers to reopen everything by Easter. Meanwhile, his decisions feel quite hectic. Yesterday he considered, for instance, closing parts of NJ, NY and CT. He reversed course later in the day. Also, Congress and the president are using this crisis as an excuse to dole-out whatever goodies they see fit. America will be transformed by this political hyperactivity, and not for the best. Yet people seem to accept their fate and the risk of tremendous and permanent expansion of government powers without much if any objections.

So true.

Vero’s e-mail brought yet again to mind a book that I’ve lately been pondering quite a lot: economic historian Robert Higgs’s 1987 volume, Crisis and Leviathan. In this richly documented work, Higgs convincingly shows that with each national crisis government power ratchets up. The crisis might be fully genuine or inflated or utterly mythical; it matters not. Whenever there prevails widespread belief that a crisis looms, people turn to the state for help. And turning to the state for help during times of crisis always results, in practice, in granting to the state new powers.

Let’s avoid the immediate and existential danger; we’ll worry about the precedents, costs, and other consequences of today’s crisis-mode actions later – such is the popular attitude.

Typically, the quantum of additional powers granted to – or seized by – government during each crisis shrinks somewhat when the crisis passes. Normal times, after all, aren’t crisis times. But never do such additions to state power fully disappear. Government’s exercise of these powers is perceived as having been key to escaping the crisis – so such powers become more widely regarded as being beneficial. Fear of such powers is lessened.

The fact that this happy perception of the consequences of such powers is, at least to some degree, always an illusion conjured by the propaganda that government officials inevitably deploy to justify their exercise of their new powers is irrelevant. If people believe that this new grant of power and that new expansion of authority as used by government officials were both effective and necessary to the nation’s escape from Armageddon, people naturally lose some of the skepticism they had, pre-crisis, about such power and authority.

As summarized by Higgs, “each time the government expands its effective authority over economic decision-making, it sets in motion a variety of economic, institutional, and ideological adjustments whose common denominator is a diminished resistance to Bigger Government.”

History Matters

This resulting ratcheting upward of state power depends significantly upon historical circumstances. These circumstances obviously include triggering events, such as when the words or deeds of some foreign government provoke military action, when devastating hurricanes and other natural disasters strike, or when pandemics sweep in. But these circumstances include also the attitudes and personalities of the individuals who are currently charged with making policy decisions.

Consider that had the largely non-interventionist Pres. Calvin Coolidge’s 16-year-old son not died suddenly from a staph infection at the White House in 1924, Coolidge might have chosen to run for re-election in 1928. And had he won, he surely would have responded with fewer unprecedented interventions than were unleashed by the “Progressive”-minded Pres. Herbert Hoover.

As implied by an argument that Higgs offers in another important book – Depression, War, and Cold War (2006) – it’s likely that a less-interventionist response to the economic events of late 1929 and the early 1930s would have avoided transforming an economic downturn into an unprecedented Great Depression. In turn, the New Deal might never have happened.

But happen it did.

Contrary, therefore, to the conventional wisdom of ECON 999, state power isn’t created and used only according to objective, detached, scientific criteria. Politicians and bureaucrats are not altruistic ciphers, standing above the tempest of historical contingencies, surveying reality and intervening only if, when, and to the extent that they detect, with their scientific tools, “social” costs and benefits diverging from “private” costs and benefits.

No, says Higgs: “None of the standard theories recognizes the extent to which the development of Big Government was a matter not of logic, however complicated and multidimensional, but of history…. [R]eal political and socioeconomic dynamics are ‘messier,’ more open to exogenous influences or shocks and less determinate in their outcomes than the theorists suppose. Critical events may turn on nothing more substantial than the whim of a President or the ideology of a single Supreme Court justice.”

Furthermore, as the example of Calvin Coolidge and Herbert Hoover suggests, those individuals who obtain and retain positions of power in government tend to be those who are most interested in possessing and exercising such power. For each crisis, then, the likelihood is that the ideology of the holders of power prompts them, not to keep their power in check, but to expand it. And as power expands in a ratcheting-upward way, power becomes ever-more valuable and intoxicating to possess – meaning that competition to grab power becomes ever-more intense. This increasingly intense competition for power, in turn, selects those persons who are both most hungry for power and least bound by ethical restraints in pursuing and using it.

Growing Accustomed Even to Unwarranted Burdens

Only further encouraging this ratcheting-up of state power is an unfortunate decision-making trait in voters identified by economics Nobel-laureate James Buchanan. In his relatively unknown but deeply insightful 1967 book, Public Finance In Democratic Process, Buchanan argued that when voters become accustomed to any existing tax, they thereby become less resistant to using the proceeds of that tax to fund new projects. And so if the original project for which the tax was instituted shrinks in importance such that government need spend less money on that project, rather than have the tax shrink, government instead finds new projects to fund with the revenues from the existing tax. Buchanan argues that the same citizens who would object to funding new projects with a new tax are typically content to fund new projects with an old tax.

Anticipating the thesis developed much more fully twenty years later by Robert Higgs, Buchanan wrote:

Experience suggests that, almost universally, tax and public spending rates which are increased, temporarily, to meet wartime or other emergency fiscal needs remain substantially higher in post-war, post-emergency periods than before…. Wartime spending needs are such that the threshold of decision can be crossed with newly imposed taxes or with substantial increases in rate levels of existing taxes. The additional real costs, in opportunity cost terms, of the expanded spending program is accepted in the emergency setting. Once these needs disappear, however, the bias is shifted in favor of a continued high level of public activity, as opposed to a return to some pre-emergency balance between the public and private sector. Not having to undergo the apparent sacrifice of real resources generated by new tax financing, the individual is more willing, in post-emergency periods, to approve spending on the provision of services than he should have been in the pre-emergency setting.

The relevance of Higgs’s and Buchanan’s insights into today’s crisis is evident.

 

Donald J. Boudreaux is a senior fellow with American Institute for Economic Research
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