Tuesday, 5 December 2017

Can Government Make a Business Run "For The Good of Society" ?

The New York Post recently reported that a judge in Indiana has temporarily barred Starbucks from closing 77 Teavana stores that were failing because "the very profitable Starbucks could absorb the financial hit". Industry experts said the ruling will send a chill down the spines of distressed retailers, and with good reason! The prospect of not being able to shut down an outlet that is bleeding the rest of the business may have countless unintended consequences that will affect not just owners but consumers in general. Firms are likely to take this as a signal to be more cautious about opening up new stores, and become reluctant to invest, take risks, and employ people in the first place. Customers stand to lose.

Amidst the debate upon the justice of the justice in question, I heard a voice clamour, "The question is not of profit, but whether a business should be run for society or society should be run for business!" and to be quite frank the claim struck me at first as vacuous; professing much while saying very little. Yet we must admit that throughout history many governments have believed they were "serving society" (rather than the business community) by forcing companies to fix prices, continue operations at a loss, or even subsidising or bailing them out with public funds. Many have believed this is in the interest of "the greater good."

Could it be that government forcing Starbucks to maintain unprofitable stores - in some circumstances - would be good for society?

First we should examine the use of the word "society" itself. Rather than bring clarity, it obscures the issue, making it more difficult to apprehend the facts of the matter. Who exactly is society and how do we measure what is and isn't good for it? Society is made of a whole bunch of different individuals and groups with different interests, and what is good for one might not necessarily be good for another.

It's not that keeping a Teavana open despite the owner's desire to close it won't be good for anyone; clearly the proprietor of the shopping centres is willing to fight hard for what they stand to gain, and certainly regular patrons will be happy to be able to get their regular cup of chai before leaving a hard-days-shop. However, the point is the move privilege a few individuals who want to continue going to those outlets at the expense of everyone else in the area who has demonstrated that they would rather something else opens up in that space instead. Starbucks then will need to recuperate the loss somehow or other, perhaps by increasing prices slightly at all other locations. If the locality can only sustain the demand for three tea houses and the unprofitable Teavana happens to be the forth then they are also bleeding demand away from the other three, and so on. We can continue counting negative consequences to other parties.

If Starbucks are deprived of however many millions it costs to operate 77 unprofitable stores that is less money they have to invest in stores that are wanted by enough people to keep them afloat. It's less cash for shareholders who will take it out to the shops to spend it or reinvest it in other businesses, it's less for Starbucks customers who have to pay slightly more for a cup of coffee and therefore don't have to spend on something else, it's less for Starbucks employees who might have to forego a raise because there is less to go around..

Clearly the effect of this policy is not something that can be broken down into whether it ‘benefits society’ or not. All we can say is that it benefits some groups and harms others.

It seems ironic to me that most of those who will cheer on the judges ruling, forcing Starbucks to run 77 tea outlets - against their own interests - for the interests of others are probably the most likely to complain when a Teavana opens up that it will "drive out" locally owned tea houses (which are probably actually collapsing under the strain of the regulations they have to comply with, not being able to afford Starbucks team of expensive lawyers and accountants.) If anything you'd think this crowd would be cheering on the closures! As they carry with them a certain prejudice that whatever vexes big business is necessarily good for the rest of us, we can only conclude that supporting the ruling is less about what is good for society and more about what is bad for Starbucks.

Friday, 15 September 2017

Surplus Value

It's still a very prevalent view that employers are somehow exploiting the people who work for them when they draw a profit from their business, despite the fact that a person's employer is clearly doing more for their finances than all of the people who are not employing them. I might add, perhaps somewhat facetiously, including those keyboard-warriors who claiming that entering someone into employment is exploiting them.

It is true that workers do get paid less than the total value of what they produce, but that is because what they produce is made with other resources which have to be bought, and in a factory or work place which has a price and requires overheads to operate. The capitalist is responsible for paying for marketing and advertising to link the product to potential buyers - and at the end of the day, if the product doesn't sell, everyone else has already been paid but the capitalist walks away with the loss.

The capitalist lays out a vision of what he thinks will meet people's needs better than they are being met at present. This requires a particular expertise which is in itself a labour contribution over and above that of the other employees which is unique to the entrepreneur. If his vision is clear, indeed he will make a profit. If it is faulty he will make a loss. This is not a necessary risk, absent the profit motive a rich person is more likely to buy a bigger house or go on a cruise. But the capitalist takes a risk now, and foregoes consumption, in hope that he will reap the benefit later. That is part of what he is being paid for.

Another part of what he is being paid for is the time between making the investment and getting paid for that investment. We would all rather have resources in the here-and-now than some time in the future, because the future is uncertain, that is why lenders can charge interest on money that they borrow. They are choosing to forgo a smaller amount of consumption now for a larger one in future. The workers get paid now, the capitalist gets paid later only after the product has sold, and only IF it is sold, after everyone else has been paid. Austrian Economist, Eugen von Böhm-Bawerk explained that far from exploiting labour, the capitalist removes the burden of waiting for income from the workers. If they wanted to produce the goods themselves they would also have to wait until they could find a buyer before gaining a stable wage, and first save or borrow in order to accumulate the resources to buy a factory or workshop without the help of the capitalist.

Finally, it's worth mentioning that the capitalist is increasing the value of the workers labour! If a man decides to try out the same manoeuvres which might get them somewhere in a factory out in a field it will not produce much of value to anyone else. Clearly workers can earn more working for their employer than for themselves otherwise they would simply declare themselves self-employed and get on with making a higher income. Perhaps some of them can earn more working for themselves but do not want to take on the responsibilities entailed which are currently met by the firm which employs them. This too is evidence that capitalists are providing value.

Marxists hold that capitalists simply skim their profits off the top while providing no value of their own. That they are "extracting surplus value" from their workers. But if that was true, non-profit organisations would just swoop in and undercut profit-making firms by eliminating the "dead weight" costs of paying a capitalist. They do not because they cannot. Capitalists are clearly providing some competence or vision which benefits their workers. Each benefits from the mutual exchange, as evidence by the fact that if the worker could get a better deal s/he would take it, and if the employer could find a better worker s/he would hire them instead.

Ultimately, wages are not an arbitrary figure but a reflection of how much value an employee is able to provide to a customer. If a person wants to do away with an employer they can do so by learning skills, either on the job or on the side, which will allow them to work for themselves. Likewise, profits are not arbitrary but a reflection of how much value a company is providing on the marketplace. Provided - of course - that they are drawing their profits from serving the market place rather than lobbying or appealing to the state, but that is another article.

"In order to show that it is a half-truth, we must have recourse to long and dry dissertations."
- Frederic Bastiat

Thursday, 24 August 2017

Human Action for Beginners

The Austrian Economist Ludwig von Mises (1881-1973) authored his Magnum Opus Human Action (1949) in which he laid out his case for laissez-faire capitalism based on  a rational investigation of human decision-making. Mises, and the work by extension, is often maligned for "rejecting the scientific method" but this criticism is based on a lack of understanding of Mises' arguments. Admittedly, while few of his critics have read the man himself, Human Action was not exactly written with a lay audience in mind and so the basis of his ideas cannot be easily grasped at a glance. In the interests of clarity, allow me to make his case for him in my own words.

Mises did indeed attest that  the empirical method (positivism, or the scientific method) is not the correct methodology for reaching reliable conclusions on matters of economics. However, he did not reject the scientific method. He merely pointed out that the empirical method is ideal for matters of the natural sciences because when it comes to inanimate objects results are predictable. This is because the natural world is deterministic. Copper always melts at 1,085 °C. That which does not melt at 1,085 °C is not copper. Human beings, however, have differing values, tastes and information all of which strongly influence their decision making. Will a person buy a hamburger at half price? Certainly many more will than at full price, but for example I will not because I am a vegetarian, whereas some others may buy several times as many. It all depends on their individual ideas, expectations and preferences.

When it comes to matters of economics there is no way to set up an experiment and control for all factors as we can in a laboratory. We cannot, say, increase the minimum wage in one region to measure the effects on overall employment and compare it to the effects in another region where it is not increased, firstly because the implementation (or lack of it) in one region will also affect the behaviour of individuals in the other (some may move to take advantage of higher wages, others may stay to take advantage of cheaper labour costs.) Secondly because an economy is complicated, and thousands of other factors would also be at play in both regions which cannot possibly be controlled for. We cannot say (for example) that just because employment rose in one region after a minimum wage increase that this change was due to the minimum wage increase, only that it happened. Because we have no counter-factual there is no way to tell if employment would have increased even more if the minimum wage increase had not been enacted.

In light of this, Mises attested, a more suitable method of approaching economic questions would be necessary than the empirical one, based upon the foundation of certain axioms about human nature which could be reached by introspection (or thymology as Mises labelled it to distinguish from different uses of the term introspection.) In the interest of brevity and simplicity we only need to consider three of these; and I will explain why each should be uncontroversial.

The first is that humans act. This claim is hard to argue against because the very act of doing so would be to make a performative contradiction. The second is that when people act, they do so in order to substitute a state of affairs which they consider preferable for one they consider less preferable according to their own values. Again, I see no argument against it; if one is completely satisfied with their situation as it is they do not act but stop. Even the attempt at meditation or mindful acceptance of the present moment is based on the impulse to substitute a pleasant state of surrender to circumstances outside of ones control for a less pleasant state of resisting them. Finally, I add, that people respond to incentives. This axiomatically true because what people do not respond to can hardly be considered an incentive by the very definition of the word.

(To anticipate a potential objection I draw an analogy; a person might scold a dog for poor behaviour in the hope of stopping that behaviour, without realising they are reinforcing it because their dog enjoys negative attention better than no attention whatsoever. This does not mean that the master is failing to incentivise the dog; it just so happens that he is not incentivising the dog to do what he thinks he is.)

An acceptance of these three axioms (for which their is unlikely to be any disproof) reveals that it is incentives which guide economic decision making among individuals. This we all accept, if not in our conscious philosophy then by our actions. To illustrate with our earlier example of the half-price hamburger, the business owner offers this deal in the hope of selling more burgers by creating knowledge of his product. A person buying the burger at the lower price incentivises burger joints to offer burgers at a lower rate. (One might argue that not everyone will respond to incentives, illustrated by the fact that I will not buy the burger because I'm a vegetarian - but in fact in my case the incentive is simply not great enough to suit my values; were the price of the burger was -$10 [minus ten dollars] I might take the money and give the burger away to a homeless person.) Our policy-makers are often led by their unconscious acceptance of these axioms, for example, they may put a tax on alcohol do discourage its consumption, while placing a subsidy on a solar panel to encourage its use. These are not policies guided by the empirical method which is better suited to the natural sciences, but by the aprioristic understanding that humans act, and in their actions they respond to incentives. That is the method, named praxeology, which Ludwig von Mises advocated.

Wednesday, 23 August 2017

Slavery did not advance Western Civilisation.

Every now and then someone will say something like "Despite the fact that slavery was immoral the modern world was build upon slavery and we owe the lifestyle we enjoy to the sacrifice of slaves..." Sounds compelling - except its not true. Slavery held back the advance of civilization because its pointless to innovate, invent or automate when you have (free) slave labour. Absent slavery the agricultural revolution may have begun decades earlier. Slavery was an abomination, and positive ends can never become of corrupt means.

Monday, 3 July 2017

Three Psychological Stages of Political History

I have a wacky theory about the history of ideas (or history proper as Mises would consider it.) When a child is born as far as s/he is concerned the parents are God. They are the authority on what is correct and what is false, they are also morally absolute. Their defining attitude towards their parents is a big "yes." Even if the parents are cruel or abusive, it must be me at fault not them - since they are the authority. At some point between 2 and 7, then later again in the teens, the youngster begins to assert their individuality by rebelling against the parent, the more the parent tries to apply authority and demand certain behaviours, the more the child will rebel against this authority with a resounding "no!" The child feels empowered by making the parents feel out of control emotionally, s/he asserts their dominance over them because the parents want compliance, and the child has the power to mete it out or not - causing the parents an easy time or grief. If the response to this "no!" is overly authoritarian or permissive and lacks engaging with reason and appropriate boundaries bad patterns can be set for life. The child can become compliant and later susceptible to peer pressure as he gets stuck in "Yes" or overly rebellious (even to his/her own detriment) and stuck in "No." From this point on any instructions or even mere advice from others - sometimes even from oneself - result in the involuntary impulse to rebel, stick heels in, and refuse to comply even if the request is in the child-now-adult's interests. This can create tremendous problems including a lack of self-discipline and relationship tumults. A wise parent manages to avoids unwittingly molding this kind of character by creating opportunities for his children to say no and rebel to safe and relatively trivial things. For example s/he does might not tell them not to smoke, know that if s/he does they will smoke. Perhaps they will be told not to climb that tree or to play in the muck instead, something relatively innocuous.

A mature person is able to say "yes" or "no". Without the ability to say "no" a "yes" is utterly meaningless because it does not come from the person's individuality. A "no" without consideration is also a counterfeit individuality, it makes one feel like they are having a say but actually they are purely governed by involuntary impulses as sure as those of the "yes man" or people-pleaser. The new man says "yes" to life; and in that he in many ways seems similar to the primordial man, but there is a critical difference - his yes to life is out of fully integrating all previous stages of development rather than an arrested development.

It's my assertion that maybe we have seen a similar evolution in the political sphere. Classic Liberalism arose as a response to a form of conservatism that was very much a "yes" to authority; the authority of the state, aristocracy, church, powers that be. The authorities of the time were very puritanical and their morals and social norms severely restricted the freedoms of people in terms of whom they could marry (usually whom their parents decided) what they could do for a living (what their parents did) what they could own (most of it belonged to their lord, many could not own land) what they could put in their body (moralizations about alcohol) what they should learn and read (mostly the bible) how they could pray (no pagan gods, no Judaism, etc.) and so forth. Now the arrival of liberalism was a resounding "No!" to authority. In a Hegelian fashion it formed an antithesis to the prevailing mores of the time. It continued to develop into other rebellious schools of thought that claimed to rebel against the prevailing authorities: socialism, marxism, communist, progressivism, &c. and reached its hedonistic peak in the 60s with the free love movement and all the big government and welfare programs - but it went to far too fast for a first attempt and soon there was a reaction against it which turned the tide back for a while. After the 80s it came back swinging though and has reached its second crescendo today with the social justice warrior movement. This has become the new thesis and it required an antithesis to counteract it. Clearly I believe that is libertarianism. It is the new man who integrates all previous stages of development in his evolution. In many ways it seems to harken back to certain "conservative" concepts which liberalism reacted against, but in reality the context of the acceptance of certain aspects of authority and tradition is now based on reason ("they have been shown empirically to work better than all that libertinism") rather than authority alone.

What do you think of my thesis? Are you the new wo/man?

Sunday, 21 May 2017

If you're not growing you're dying.

It takes a long time to make changes in public institutions. You have to get enough of the public interested to make it an issue, you might need to get into the media which itself is a hell of a job and even if you do rouse some attention the best most people can hope for is to vote, and they need to vote for one of the package deals on offer. Even if your reform is quite modest and sensible and its benefit is uncontroversial, it may be adopted by a party who have several other ideas on your mind that you disagree with. There is another path, and that is to get a small concentrated number of people who already have a lot of influence to get on board with your ideal and push it through as a bill but even then the matter is not settled; it needs to go through levels of bureaucrats, managers and administrators before the change enters into the system at large and even then many employees will resist the change because they resent being told what to do by central planners.

If we take the example of our education system there has been no small amount of evidence on how to improve it since the 60s when a wave of intellectual idealists from the flower power generation began discussing how "getting things right" when it came to government could change the world. Some of this data has been around for over fifty years, some of it is still coming out. Have these reforms not been adopted for a lack of political will? Yes to a degree but also because of the insurmountable obstacles to mustering the political will. The largest is the simple fact that most people are more comfortable doing what they have always done than doing something new. Doing things differently is anxiety-provoking and it is very irritating to be told or forced to do it by an authority figure, even one who has the evidence on their side, when you think, "Well I have been on the front lines doing it this way my whole life, this is how I was taught to do it in four years of university I think you'll find I know how its done thank you very much you government busy body."

One of the reasons why markets are so important, and why products adapt to user preferences far quicker is because only one person needs to be bothered enough to accept a new innovation in order to force all the other providers in their sector to step up and do a better job. They can do that by matching the innovation, by implementing one that is equally valuable, by providing an inferior service but at a lower price, or in numerous other ways - but the fact is they have to step up and serve customers or on average over time they will be out of business. This means people don't even need to all be receiving the same service or a one-size-fits-all but it does mean that services that are way behind the times will fall out of favour. Public institutions are not under the same pressure to adapt to the times because people cannot divest from them easily since they are funded through the tax system rather than voluntary contributions that can be withdrawn if the service is poor, and also because they have a relative monopoly on the provision of services in their sector which means that people can't compare their performance to those of competitors who are trying different approaches which may have their own advantages or drawbacks.

People need to have a choice when it comes to services if the quality of services is to increase and not stagnate or fall behind the times. This is not because "ruthless tooth n' nail capitalist competition drives innovation" but simply without the petri-dish of trial and error which is a multitude of entrepreneurs with different information and ideas trying to sell them to a skeptical public there is really no way of discovering the best way of doing things. No one has all the answers, but many people have some of the answers, and by constantly turning over the soil society learns to combine the best ideas and discard the worst ones over time. The soil of government turns very very slowly and that's why innovation in the private sector continues (despite various government restrictions on who can innovate) while public institutions stagnate and become more expensive each year while providing poorer standards to the people.

Saturday, 22 April 2017

6 Reasons Why Healthcare is so Expensive in the USA

- In many states if you want to open a hospital you are obliged to go before an official board and demonstrate that the community needs this hospital and that you are willing and able to fund it all by yourself. The people on the board are going to be the big hospital administrators from already existing institutions who want the competition like a hole in the head.

- Nineteen states are even limited to having only a single medical school! There are only 123 in the US despite thousands of perfectly capable students being turned away every year because they can't find places.

- Not everything a doctor does requires 7 years of training but the law requires everyone to have at least 7 years of training to do it. (In some cases a practitioner will have to do 4 years of undergrad, 4 years of medical school, then 3 years residency by the end of which many are so burned out and seriously debt laden before they even begin their career.) The natural prescription is to allow doctors surgeries, clinics and hospitals to train and certify their own assistants to take responsibilities off the hands of highly specialised staff so that fully fledged professional can focus their time and attention on what they alone are capable of doing. Healthcare costs would plummet.

- In December 2011, the Administrator for the Centres for Medicare & Medicaid Services, Dr. Donald Berwick asserted (as he was leaving his job) that 20-30% of health care spending in the US is going to waste. He listed the five major causes as over-treatment, failure to coordinate care, the administrative complexity of the system, burdensome rules, and outright fraud.

- One study found that per capita prescription drug spending in the United States exceeds that in all other countries, $858 compared with an average of $400 for 19 other industrialized nations, and the most important factor allowing manufacturers to set high drug prices was market exclusivity, protected by monopoly rights awarded upon Food and Drug Administration approval and by patents.

- A Harvard Business Review analysis published in 2013 revealed that while the U.S. healthcare workforce grew by 75 percent between 1990 and 2012 a whopping 95% of the new employees were administrative staff rather than doctors or nurses meaning 19 administrative workers for every doctor. The Annals of Internal Medicine last year, observed 57 physicians found that 29 percent of total work time was spent talking with patients or other staff members and another 49 percent was spent on electronic record keeping and desk work.

I am writing a book called Why is Healthcare in America so Expensive if you want to get notified about it when it's ready download my last book for free.

Tuesday, 4 April 2017

The River: Public Policy or Private Responsibility?

What is common to many is least taken care of, for all men have
greater regard for what is their own than what they possess in
common with others. 
The idea of aspects of the natural world being "privately owned" strikes as rather crass to most people and perhaps with some good reason as it brings to mind a vision of heartless mercenaries sacrificing nature to the pursuit of profit. Industrialists, we are led to believe, can only possibly view nature as a means to and end rather than an end in itself, and in doing so reduce it to a disposable commodity.

However, this prevailing assessment does not take into the equation the fact that true ownership is attended by responsibilities to which an owner must be held accountable. Where rights entail responsibilities (as they have in the past under common law), and these responsibilities are enforced, the claim to a property will serve naturally as an incentive to conserve that property. In effect owners will become custodians.*

* (The words "ownership" and "property" have perhaps simply taken on negative connotations synonymous with exploitation for various historical reasons, and so it is essential in order to dialogue on these topics that we make explicit the fact that our definition of ownership is one that not only entails property rights but property responsibilities.)

Most people presume that government must fulfill the role of protecting the natural world, but this arrangement throws up some rather dubious incentives. When governments write policy documents about rivers, lets say, they tend to be for the purpose of  delineating who is allowed to exploit the river, on what terms, and in what measure. Special favours can always be handed out to cronies or campaign contributors; to “stimulate local business”; or for any other political ends that might attract short term support for office-holders regardless of the long term consequences. The rights to log a forest can be sold off to the highest bidder and the tax payer can be left with the burden of restoring it to health.

Where the river (or forest) has particular ownership (rather than general ownership) it is fully in the interests of the owner (or owners) to keep it permanently in pristine condition for at least three reasons. (Owners also need not necessarily be private companies or individuals, but also charities, trusts, worker or consumer cooperatives, NGOs, or any form of organisation - that notwithstanding,  even if held by a private corporations these same incentives will apply.)

The first is in order to retain (or even increase) the resale value of the river. The better condition the river is kept in the higher its value will become; and even if the proprietor has no plans of ever selling the river they still have no interest in losing whatever outlay they have sunk into acquiring it in the first place. As such, a particular owner has the maximum incentive to protect against the river being polluted and to take whatever action is necessary to prevent it from being polluted. As a rightful owner they have the legal and moral right to take action against anyone who pollutes the river because the polluter has damaged the value of their property.  As it is not under general ownership where everyone has as much right to abuse it as anyone else does, the proprietor's interests are aligned with the interests of the natural world, thus he is risen to the level of a custodian. 

Secondly, a well-kept resource is renewable - it can turn a profit indefinitely. A badly-kept resource cannot. If a river is ill-kept the return on the investment for acquiring that resource will soon dry up (no pun intended.) As such an owner who does not know how to take care of the river will stand to gain more from passing it on to someone who does than from keeping it. A superior custodian will be able to pay more to acquire the river since they know how to put it to good use indefinitely.  The best experts in keeping a river running cleanly stand to gain the most from owning them and therefore will be able to pay more to acquire them than those who lack that expertise. In this way those who are the best custodians of resources will end up with them in their care on average over time. (The same would go for forests, fisheries, or grazing lands; where altruism is not enough to motivate environmental concern, rational self-interest will usually do the trick.)

Thirdly, if the river is not properly kept and becomes polluted, this is inevitably going to have negative effects on neighbouring lands, industries and settlements as the pollution is carried by the river onto other people’s property. At this point, as the last line of defence against irresponsible misuse and management of the river is the threat of litigation against the owner for his negligent and harmful management of his property. Where others have suffered harm, loss of health, or damage to their own property, a particular owner should be forced to pay damages and reparations to restore them to their original condition. They can lose their personal property and have to forfeit ownership of the river if they are found guilty of causing damages. When the government causes environmental catastrophes, as they often have, they can only be tried in their own courts, and even so the property of decision-makers is never at stake - even if found guilty of wrong-doing, the public purse will eventually foot the bill. As officials in public institutions tend to have a diffusion of responsibility it is hard to hold particular culprits to account for their actions, rarely will a department be shut down or replaced where abuses occur as they are presumed essential even having "made mistakes". Often state officials have sovereign immunity, occasionally one or two resignations will be tendered as a  token gesture, but the machinery of the institution remains as well as the lack of moral hazard which set it up to fail.

Saturday, 1 April 2017

Misanthropic Myths about 3rd World Poverty debunked!

One of the most persistent myths about 3rd World Poverty is that if underdeveloped nations are allowed economic advancement and become wealthy it will be some kind of unmitigated environmental disaster. Is that so?

Wealthy countries can afford to clean up their water supplies after fouling them and treat their sewage properly. They can replant their forests, put recycling infrastructure into place, and farm sustainably. Countries without wealth can’t do that. In places like Bangladesh people must scramble to make a living with no long-term consideration to their surrounding environment, and they have no means of repairing it afterwards. Starving Brazilians have little choice but to cut down the rainforest when they can hardly afford not to. A lack of a just legal system, economic freedom and property rights1 prevent some of the world’s poorest countries from diversifying their economies, leaving them to rely on the exploitation of natural resources to generate income. As these nations develop they attain the means to establish other sources of revenue that don’t simply involve digging things up and selling them.

As economic growth first sets in environmental degradation can worsen for a time but soon environmental health indicators (such as water and air pollution) tend to reduce.2 Environmental pollutants, such as sulfur dioxide, nitrogen oxide, lead, DDT, chlorofluorocarbons, sewage, and other chemicals previously released directly into the air or water are found in far lower levels.3 Once per capita income reaches about $4000 in a nation, people begin to demand a clean-up of their local streams and air. Among countries with a per capita GDP of at least $4,600, net deforestation has ceased to exist.4 Europe’s forests have grown by a third over the last 100 years.5

According to Hans Rosling, sustainable global development advocate, the richest billion people in the world are responsible for 50% of the world’s consumption of resources, the 2nd billion for the next 25%, and the third billion for the next 12.5%.6 This means that the 2 billion poorest people in the world could easily be raised to the standard of living of the 3rd or even 4th poorest with very little environmental impact at all.

Western Nations can help by establishing free trade with the world’s poorest countries and importing their produce in order to help their economies develop faster. Cheaper produce would also mean better living standards for people on low incomes at home. The protectionists argue that this would harm domestic farmers (who are already in receipt of considerable state benefits and government subsidies – some of which have been an environmental disaster7) but these farmers would not be starving should they have to migrate into other occupations – people in the third world are! They themselves could benefit from cheaper produce, and are we really expected to put the interests of a small group ahead of everyone else in the country and abroad?

Concerns for the environment regarding “food miles” (how far food has to travel) are also completely misplaced. It is often far more energy efficient to grow foodstuffs in countries with naturally high temperatures which would otherwise have to be artificially raised in colder climates. As Matt Ridley explains, only “4% of the lifetime emissions of food is involved in getting it from the farmer to the shops. Ten times as much carbon is emitted in refrigerating British food as in air-freighting it from abroad, and fifty times as much is emitted by the customer travelling to the shops.”8 Economist Johan Norberg also attests that while 83% of the CO2 emissions involved in American food consumption is used in the production phase, less than 11% is caused by transportation and that it's puzzlingly more environmentally friendly to grow apples in New Zealand and ship them all the way to Great Britain than to produce them locally.9

Some environmentalists believe that growing populations attaining greater living standards in developing countries is a recipe for ecological disaster, but actually birth rates fall to manageable levels only when countries become developed. The industrial revolution created population booms across the whole planet – but in every single country where a reasonable standard of living has been achieved population growth receded; there is no reason to believe that will be any different when it comes to the developing world. Education has played an increasing role and will continue to do so, while current projections predict that the world’s population will level off between 9 and 11 billion, and may even then start falling.

People who don’t have to scrape out a living can get educated, work less in agriculture, factories and more with their minds. Their occupations are not so polluting, and some of them may even be responsible for the environmental innovations of the future. Inventions such as e-mail and the USB Flash Drive have already saved more trees than all of the environmental activism throughout history combined, and a car today emits less pollution travelling at full speed then a parked car did in 1970 from leaks.10 It is clear that innovation is set to play an increasing role in the solution of our environmental issues. Intensive farming techniques have helped save countless acres of rainforest by increasing yields over less land, and soon lab-grown meat from cloned tissue may put an end to our factory farming crises by reducing the massive ecological impact of meat production through fossil fuel usage, animal methane, effluent waste, and water and land consumption. Cloned meat will also produce a positive impact on world health by eliminating the heavy use of antibiotics and preventing the fecal contamination which factory farming currently produces.

Countries where the vast majority of people are engaged in subsistence farming are a waste of millions of minds. They do not have the leisure time to enjoy art, become cultured, innovate, creative, and reach the higher potentials of human flourishing which will allow them to contribute to advances which may help everyone on the entire planet. They are too poor. Farming is of course a fine occupation too, but it should be chosen rather than forced upon people by poverty.

If we really believe in prosperity, we have to believe in it for everyone. Not just those lucky enough to be born into affluent nations. Fundamentally, it’s not economic progress but our irresponsible economic systems which are responsible for the environmental damage we have seen over the last 200 years. Governments can externalise the costs of damaging the environment and redistribute it to the taxpayer, rather than allowing producers and consumers who pollute to pay for the full cost of their choices. We can create sustainable economies by holding individuals and organisations personally responsible in proportion to how much they pollute. These very incentives would encourage people to choose sustainable development and ecofriendly habits far more of the time.

1 Where private property is established, logging companies develop the incentives to look after the sustainability and long term value of their land, and charities can even buy up tracts of land for preservation. At present that is rarely possible as those property claims would currently just be ignored by the loggers and the corrupt governments in those countries

2 Tierney, J. (2009). “The Richer-Is-Greener Curve.” New York Times.

3 Ridley, M. (2010). “The Rational Optimist.” Fourth Estate. p106

4 Waggoner, P. E. (2006) “Returning forests analyzed with the forest identity.” Proceedings of the National Academy of Sciences of the United States of America, vol. 103 no. 46.

5 Noack, R. (2014) “How Europe is greener now than 100 years ago.” Washington Post.

6 See BBC Documentary “Overpopulated” (2013) (available on youtube).

7 For example, the EEC – now the EU – tried a policy of buying everything that farmers produced and couldn’t sell which led to mountains of excess grain being produced that then had to be sold off at knock-down prices to third world countries, causing gluts in their markets which put local farmers out of business and had devastating effects on their economies. Before the policy was reverse countless miles of hedgerows well pulled up to make fields bigger uprooting the natural habitat of countless animals and insects giving way to the bleak, soulless prairies that parts of the UK have becoming. Magnificent wetlands were drained and destroyed to plant more land for crops that no one could sell 95% of the flower-rich meadows, 60% of the lowland heath, and 50% of ancient lowland woods were destroyed in little more than forty years in the UK alone.

8 Ridley, M. (2010). p41.

9 https://www.youtube.com/watch?v=_mBgUqqnsyw

10 Ridley, M. (2010). p17

Tuesday, 21 March 2017

Occupational Licensing

In 2015 Obama sent his council of economic advisers out on a fact finding missions to discover why job creation was so hard for the administration and this council - made up of a bunch of Democrats, right - not ideological free marketeers - concluded that demands for mandatory occupational licensing were creating terrible cartels, excluding workers and getting in the way of regular people wanting to start up businesses.

There are over 800 occupations that might require a licence in some states in America including a tour guide, manicurist, dog walker, librarian, locksmith, dry cleaner, auctioneer, fruit ripener, plumber, private investigator, Christmas tree vendor, florist, interior designer, funeral director, cab driver, shampoo specialist, glass installer, cat groomer, tree groomer, hunting guide, kick boxer, real estate agent, tattoo artist, nutritionist, acupuncturist, music therapist, yoga instructor and mortician.

On the back of people's justified fears of disastrous bridges being built by unqualified tradesmen and hapless patients being sliced open by quacks, government - with the help of protected industries - have managed to sell the myth that mandatory occupational licensing increases the safety and quality of services. People assume that if the government says its fixed its fixed. The reality is that mandatory occupational licensing far reduces the number of practitioners operating in any sector, and when consumers have less choice they have to take whatever they can get at whatever price they have to pay. As a result the quality of services can actually go down and prices up.

This is borne out by the empirical data:

After compiling a meta-analysis entitled, "Rule of Experts," S. David Young concluded “…most of the evidence suggests that licensing has, at best, a neutral effect on quality and may even cause harm to the consumers... The higher entry standards imposed by licensing laws reduce the supply of professional services…. The poor are net losers because the availability of low-cost service has been reduced.”

Stanley Gross of Indiana State University, had to concur, “…mainly the research refutes the claim that licensing protects the public.”

More recently economics PhD. Morris Kleiner released two publications (2006, 2013) for the Upjohn Institute for Employment Research demonstrating that licensing occupations does more to restrict competition that to ensure quality.

On a free market, the poor may have to sometimes settle for inferior services - but often that is better than no service at all which might be what they otherwise receive. Even so, the price of most services will come down over time if a multiplicity of firms are offering similar services: if not in price then in real terms as wages rise. There are more risks though. When people can’t buy services they might try to do their own work, their own electrical work, plumbing or dental work, this has often happened in the past, and sometimes the consequences can even be fatal.

Still, most people find it difficult to imagine how society might be protected from quacks without government-mandated occupational licences, so lets have a quick review of some of the market can account for this:

Market Competition. Consumers provide a large degree of regulation over markets by not repeatedly buying poor services and advising other customers of what to buy and what not to buy.
Consumer Watchdogs. Customers want to know which services offer the best value for money and are quick to consult experts in magazines or online for good information before they choose a provider.
Employer Discretion. Employers do not want to take on a poorly qualified civil engineer or plastic surgeon.
Registration. Third parties or groups of experienced practitioners can create registries of bonafide service providers. If a complaint is lodged against someone on the registry the administrators can investigate the case and strike them off if they are guilty or give them a warning.
Private Certification. In the absence of mandatory government licensing consumers will often want assurance from credible sources that the services they are going to pay for are of high quality - and more importantly - safe. Third parties can offer to certify practitioners that meet their standards.
Litigation. Customers already have protection under the law against faulty products or false advertising even in the absence of mandatory occupational licensing. The threat of being sued for causing damages is enough to deter most companies from releasing harmful products, if the threat of killing off their customers is not enough already.
Contracts. Customers can make explicit contacts with service providers to ensure they have recourse if they don't get what they think they are getting. If a company says the customer is getting x but gives them y the contract clearly delineates who is in the right and who is in the wrong.
Bonding. Individuals can engage in agreements in advance that involve third parties to ensure that payment is transferred when it is supposed to be.
Insurance. Customers can insure themselves against receiving faulty goods or receiving harm from services. In some cases the insurer will be able to bring litigation against the service providers for damages incurred offering a deterrent against providing poor services.
Jail. If the fact that it is not profitable in the long-term to kill of your customers is not enough to deter greedy capitalists from selling products that are physically harmful, the prospect of a jail term just might be.

Occupational Licensing simply come down to the government abolishing someone's right to provide services to someone else who is willing to buy those services, and then selling it back to that person at a fee. This is usually at the cost of several years in some educational institution where education in the necessary skills is dragged out over several years and supplemented with a whole bunch of written work that is superfluous to the exercising of those skills. The sum result of these policies are to drive otherwise capable people out of their passion because they are not academic, can't afford the education or the time off work, or can't look at another educational institution after the horrors of school. Willing students are saddled with debts and loss of work experience while they study and expect to recoup expenses from customers. All of this drives up the cost of products, reducing living standards for average people.

We see a real problem with this with the FDA when they allow highly dangerous foods - and people presume "the government has taken care of it, if it was dangerous it would be off the market" - when the opposite is the case. They have also held (and continue in some cases to hold) life-saving drugs off the market for decades at the expense of countless lives. They also have the monopoly on this service so it's impossible to compare their performance with any other agencies that might have had a much better record of making good judgements of food and drugs. With a multiplicity of firms acting in the sector you could compare their history for a sense of which might be the most reliable when it comes to what.

Saturday, 18 March 2017

10 Ways The Profit Motive Drives Sustainability.

Time for some heresy today.

Most people are given to thinking that the profit motive in a capitalist economy can only drive environmental destruction, but I am here to say that the profit motive has been acting as a massive bulwark against the kind of environmental destruction which was seen in the communist nations during the 20th century which far outstripped the damage done to the environment here in the west.

The idea that the desire for profit is ripping apart the environment seems so intuitive that you'd think it were beyond dispute. People take resources from the earth to make products and draw a profit, right?  And because corporations are only motivated by profit they will destroy the environment in pursuit of profit, won't they? Obviously.

Well, this is not the full story, lets investigate what is unseen.

1) A forest, fishery or grazing land is a renewable resource if properly managed. Keeping it in pristine condition will not only preserve (or even increases) the value of the land but will allow the owner to profit from it indefinitely. Laying waste to it for a quick buck would be like slaying a goose which laid golden eggs for a single dinner. This is why loggeries that are privately owned are handled sustainable whereas when land is leased out to firms by the government they usually mistreat the land for short term profit and leave the taxpayer to pick up the tab. Renters don't take as good care of their stuff as owners do.

2) Companies are always trying to decrease the cost of their inputs because the lower their costs of production the higher their margin of profit. This gives firms and active incentive to constantly find innovative ways of stretching the same amount of resources further. An example of this, often cited, is that Coca Cola have made their cans thinner than they used to be. There must be dozens of others. There is no comparable incentive to save resources by decreasing inputs in a centrally planned economy.

3) Those with the knowledge of how to stretch limited resources the furthest are the most likely to acquire them on a free market because they are able to pay more to acquire them owing to their larger projected profit. This will broadly lead to copper mines and oil wells ending up in the hands of the most competent custodians; so long as the state is not in charge of who gets what, a more competent owner will be able to buy-out a less competent owner.

4) On a free market the price system values resource inputs in proportion to how scarce they are and how many people want to use them. Therefore the most environmentally friendly way to produce something also becomes the cheapest. As resources become more scare the laws of supply and demand push the price of those resources up driving innovation to find alternatives and use those which are still left better - the best alternative being a renewable alternative. There is no comparable defense against the overuse of resources under socialism where the central planners can continue to dish out the goods to cronies long after they have become scarce. (In fact the only defense against this is the potential killing the central planners can make by selling those scarce resources to capitalist economies that actually have a price system.)

6) On a free market the mechanism of profit and loss minimises the production of goods and services that no one wants limiting waste. In a planned economy central planners have to best-guess what people will want. They will often guess wrong and lots of production will simply go to waste.

7) Because consumers have to choose what products to buy with their limited resources on the free market they have to be discerning. Products that are more intensive in resource use are more expensive, meaning someone who buys them has less to spend on something else. Because resources are held privately rather than in common there is no "tragedy of the commons" where everyone has the incentive to take as much as they can in the short term to stop other people from taking it first.

8) On a free market, much of what we consider waste could be considered a free resource to one entrepreneur or another. Food waste could be slop for livestock; aluminium and tin cans, glass bottles, and many electronics can be reused. Were there a market in trash disposal, rather than central planning, people would be charged for waste in proportion to how expensive that waste was to dispose of. Perhaps they would even be remunerated for waste to the extent that that waste could be reused. The companies who were most effective at recycling and reprocessing waste in an environmentally friendly way would be able to pay the most to acquire that waste. This would change the whole face of the economy by presenting a massive incentive for companies to make their goods easy to recycle, reuse or repair as consumers faced real financial incentives for choosing sustainable purchases, Non-biodegradable forms of excess packaging and would probably be eliminated as consumers would favour items that they would not be charged for the disposal of. Planned obsolescence would also be heavily discouraged by a system where people had to pay not only the cost of buying goods but disposing of them as well.

9) The profit motive provides an incentive for companies to devise ways to turn their waste into useful biproducts that people can actually use. For example, Standard Oil invented thousands of biproducts such as paraffin wax, lubricating oils, chewing gum, and fertilizer out of resources that other companies were simply wasting. This incentive would also be far more pronounced of a true free market where companies had to pay for waste, not in the abstract, but directly in proportion to how difficult it was to dispose of - and potentially get paid for waste in proportion to how valuable it was to people who could recycle it.

10) The profit motive is constantly driving capitalists to creating innovations which are better for the environment and more sustainable than previous technologies. Memory sticks invented by capitalists have saved billions of trees. A 15 watt fluorescent LED light provides the same luminosity as a 60-watt incandescent bulb. Burgers grown in a lab from cloned meat will be solving our factory farming crises by reducing the massive ecological impact of meat production. The average smart phone has a camera, radio, television, sound recorder, music player, gps, flashlight, board and card games, computer games, video player, maps, encyclopedia, dictionary, thesaurus, access to textbooks, compass, photo album, thermometer, scientific calculator, dematerialising the need for the production of many goods and saving the environment.

A recent innovation in progress designed with the third world in mind is high-tech toilets that burn feces for energy and flash evaporate urine rendering everything sterile. No pipes are required under the floor, no leach field under the lawn, no sewer systems required to run down the block. These may have been invented decades and decades ago had the state not been responsible for getting rid of our sewage; removing the necessity to innovate. Rather than waste anything, these toilets give back packets of urea to be used as fertilizer, table salt, volumes of freshwater, and enough power to charge a mobile phone. If users can sell the energy back into the grid they will literally be being paid to poop!

So, on that note, allow me to end by saying: I’m not shitting you when I say the free market is good for the environment.

There is reams more to say on this topic and I intend to expand upon it in my book The Free Market Hippy. If you would like to be notified when it is finished download my previous book free and you will automatically be informed when it is available.

Wednesday, 15 March 2017

Child Labour

Many people believe that it was the government that put an end to child labour in Western Nations but in fact almost all the children in Britain were already in school when child labour was banned. Likewise, child labor laws in the US were passed only after around 90% of the child labor had been eliminated anyway. A large part of the push for these laws came from labour unions who wanted to increase wages by reducing competition from younger workers, and as the business community was not particularly dependent on child labour any more it had no reason to lead a counter charge.

It actually requires an advanced economy to ban children from working. Children had worked throughout all of history, long before the onset of the industrial revolution had them conspicuously running around factories. It was a given fact of life because every pair of hands was needed to provide for a family, so they worked on the farm. As soon as Western economies were rich enough that parents could provide for their children without sending them to work they sent them to school instead. In the mind-nineteenth century before there was any mandatory education in the UK, 95% of children in Great Britain already had at least 5 and often as many as 7 years of education.

Further empirical evidence was recently provided, all to sadly, in Bangladesh where they tried to ban child labour prematurely only to find (as Oxfam reported) that the results were horrific. The kids went into prostitution, destitution, begging, stealing and starvation.

Image result for child labour in factories

It appears that every society naturally takes children out the workplace when they are rich enough. It's not that parents, all throughout history, hated their children! They sent them to work because there was no viable alternative.

As world poverty continues to decline, things are going in the right direction. Child labour has declined by one third since 2000, from 246 million to 168 million children. It's not that we can do nothing in western nations to speed along this process either, in fact - with the political will - we can. Charity can help, but the primary necessity is to open up free trade with the poorest countries in the world. Removing trade barriers to buying their products would help lift millions out of poverty abroad and lower the cost of living for families on low incomes at home. The next step would be to use our influence to encourage those countries to open up their economies to foreign investment so that companies from all over the world would flood in, bringing technology, skills, and infrastructure while bidding up the price of wages. As adults are able to earn increasingly more they will be able to take their children out of work and into education where they belong.

A. S. 04-03-17

If you liked this article you may also learn from this related article on workplace safety.

Sunday, 12 March 2017

Why is the Capitalist Workplace so Authoritarian?

You are told that capital tyrannizes over labor. I do not deny that each one endeavors to draw the greatest possible advantage from his situation; but, in this sense, he realizes only that which is possible. Now, it is never more possible for capitalists to tyrannize over labor, than when they are scarce; for then it is they who make the law -- it is they who regulate the rate of sale. Never is this tyranny more impossible to them, than when they are abundant; for, in that case, it is labor which has the command.
- Frederic Bastiat, from Capital and Interest

A persistent criticism of capitalism as an ideology is that it is authoritarian by nature, and can only lead to tyrannical bosses ruling over dependent staff who are forced - by fear of poverty and starvation - to remain under their command. Certainly, if we take our example from the workplaces of today, most of them are hierarchical, and many of them pretty authoritarian. In extreme cases staff even need to ask permission to go to the bathroom. So there appears to be some demonstration to the thesis.

In reality there is nothing inherent in the system of free enterprise that necessitates hierarchy, and many businesses have been successfully run with decentralised structures. Ricardo Semler is an example of an entrepreneur who had such massive success running his business on a non-hierarchical model that he turned to teaching other capitalists all over the world to do the same. Nonetheless, crappy bosses who like to throw their weight around the shop or office are ten a penny, and since no one likes working under a dictatorship we really have to question why more egalitarian models not more common.

A market will tend to use the skills and propensities of the labour force within that market, because it is costly and time consuming to inculcate staff with new habits. For example, if a workplace can afford to hire experienced staff rather than train newbies they will often do so (especially where there is a high minimum wage.) Companies will sooner offer a raise to hold on to an employee with a good work ethic than take a risk on someone new. The fact is, human qualities are less malleable than other factors of production, and so it's usually going to be preferable to try and court the kind of employees you want around rather than try to foster whoever walks in the door into a new sort of character you like; especially considering people have their own proclivities and desires for their own personal character development, unlike machines. This is why most of the companies that run in cooperative or non-hierarchical structures begin with this idea as a primary value, and will tend to attract a certain kind of person who shares in the company vision and is competent to contribute to making it a reality. (Tim Kelley, an expert who currently helps companies adapt to what he calls "The New Paradigm in Business" states that as they do usually some number of employees flee, unable to adapt to the rights they are afforded, and responsibilities they must shoulder, under the changed system.)

Now am I saying that people are naturally slavish and therefore will tend towards hierarchy on a free market?

Not at all!

The average person who enters the workplace has been through 11-13 years of a mandatory education system which is highly authoritarian and hierarchical, and at the time in their life where their character is most impressionable and inclined to adapt to their circumstances. Their personalities have already been adapted to what was necessary for them thrive (or at least survive) under that system. Interestingly, the empirical evidence on how people best learn seems to suggest that a cooperative learning environment is far more productive than the isolated one that is the dish of the day at school. A crappy boss is not that unfamiliar in aspect from a crappy teacher, and it's hard to imagine that a population exposed to a long period of cooperative and mutually edifying education along the lines of the empirical evidence would be so tolerant of poor treatment from authority. If schools were to teach reasoning, social skills, emotional handing, conflict resolution, and other soft skills, far more people would have the skills to run organisations. start business enterprises, or create egalitarian ones.

The Marxist ideal of workers owning the means of production is perfectly compatible with free market capitalism, and there is no reason why there should not be more worker run cooperatives, communally owned business, and organisations with polycentric structures - other than the fact that currently, workers have no idea how to own the means of production or run a business. Partly because this requires different skills from what is required to complete their jobs from day to day, and partly because they are pre-conditions by years of hierarchical and authoritarian state education. If Marx was right and bosses provide no value - only skimming profit off the top - then workplaces without bosses will surely be more efficient and out-compete workplaces that shell out unnecessarily on paying them... but we will never know until we reform our education system.

Thursday, 9 March 2017

World Government is possibly The Worst Idea Ever

I was reading some old articles by Bertrand Russell on diverse topics and noticed his persistent urge to advocate the necessity of establishing World Government, even when it bore no relevance to the subject at hand.

Russell, the famous atheist, was a Government-worshiper. He wrote frequently as though Government gave rise to civilization rather than civilization to government, an unfortunately prevalent view to this day. To him it was a given that despite the many abuses that governments have perpetrated against their own people and those of one another (including two world wars in his time) that barbarism was the only alternative. One of the great tricks of government to disguise itself as society, and once the disguise is complete people come to view the achievements of society instead as the achievements of government. The more successes people attribute to government the more of it they will surely call for. Russel called for the ultimate amount - world government.

One of the reasons why most products we buy meet our needs - and reliably so - is that markets allow for a plurality of ideas to be tested against each other and for the best of those to ideas to prevail. People copy ideas and improve on them.  In an environment where there is a minimum of patent laws and monopolistic government regulations, companies can even learn from the best ideas of their competitors and mix them with their own ingenuity to create ever better products as we see in the fast moving tech and software industries. Bad ideas don't last very long, and the consequences of poorly thought out plans and products are limited to some small number of producers and consumers. Meanwhile, successful ideas are proven on the small scale before being adopted more widely, spreading out to the furthest reaches of the earth the way mobile phones are now reaching the world's poorest populations.

On the other hand, when government rolls out a policy they do so across an entire economy, and policy-makers essentially have to make a "best guess" of what will work without any small scale trials, and without any optimisation through a trial and error process with kills bad ideas and allows good ones to be tested on small populations of voluntary consumers before becoming more and more widely adopted through word of mouth. Government edicts are rolled out across the entire nations on the assumption that they will work as planned, but all policies have secondary and tertiary consequences that cannot be easily predicted. When policies go wrong, as they often do, they can have dreadful consequences for million of people or across generations, and often government will be called on to respond to the ensuing crises with another volley of "best guesses" that have not past the litmus test of trial and error by end-user approval. Often the cure in one area turns out to be poison in another.

If there is one saving grace of governments it's that they don't have jurisdictions that extend to the entire planet. As such they have the example of other nations who have tried a multitude policies that have turned out well or poorly (or more realistically poorly or disastrously) which they can learn from the example of. If one country is too regulated industry dies and it must emulate its neighbors. If another has taxes which are too high people will flee next door. Indeed one of the reasons why Switzerland is so successful a nation is that it has a Federalized form of government extending over twenty six Cantons in an area no bigger than Virginia. Because policies that work well in one area can easily be adopted in another, and populations can easily move from one state to another in response to bad ones, their government is relatively benign.

So what are we to make of the calls of great figures such as Albert Einstein, Winston Churchill, H. G. Wells, Mahatma Ghandi, and Russell, all of whom called on governments to proceed further by taking gradual steps towards forming an effectual federal world government? Or those progressives that are ever eager to see this done in the name of preventing the greedy rich from moving their fortunes offshore to avoid paying taxes?

Only that they are grievously optimistic about the benefits which world government may bestow, and woefully naive about its dangers.

Governments grow, and as they do so to does their power and influence. Vested interests are always willing to turn a blind eye to abuses taking place under the watch of those whom they are partisan to. The Right turned a blind eye while Bush sent eroded civil liberties and actively supported his invasions in Iraq and Afghanistan - after jeering Clinton's intervention in Kosovo. Obama, before elected, complained of the expansion of power in the executive branch under Bush, only to spend eight years strengthening the executive branch at the expense of Congress and The Senate. Now the left, who turned a blind eye to this use (or abuse) of executive power protest in horror as the very power they allowed Obama to accumulate has been transferred into the hands of arch-nemesis Trump.

If you want to know how bad an idea World Government is just close your eyes and picture a combination of the most devious, incompetent and glib politicians you have ever seen, and then imagine them secretly forming cohorts to compete for control of that government; because that is precisely what is going to happen should we ever face such bad luck.

Monday, 6 March 2017

What we can Learn about Economics from Scandinavia

Lately there has been a lot of talk online about how successful the Scandinavian countries are, and their success has been put down to Democratic Socialist policies like a large welfare state, high taxes, and high public spending. We are encouraged to view the example set by Denmark and Sweden as a model for our nation, and indeed there is a lot to learn about economics from the examples they have set. The nature of those lessons, however, may come to many as a surprise.

The Scandinavian countries are successful, but not for the reasons most people think they are. Each of them were already wealthy, egalitarian, equitable and successful nations long before they adopted any socialist policies whatsoever. For most of the 20th century they had more free market economies than the other countries in Europe; and because they largely stayed out the two World Wars they didn't have to waste huge sums of money on weapons, paying forces, and then replacing destroyed infrastructure in the aftermath.

In many ways the Scandinavian nations are still far more free market than the USA, Britain or France are. Their economies are far less regulated, they do not demand occupational licenses to practice in hundreds of professions that require them in some states of The US (in Finland you don't even need a license to practice law, yet people manage to hire competent lawyers and the cost is far lower), it's easier to start a business, to hire people - and fire them, and there is a lot less red tape and forms to fill in. We have certainly not been asked to heed the example of the Nordic countries in these respects, in fact these policies have been fervently opposed by the champions of The Scandinavian Model in Europe and America.

What's more, the Scandinavian countries were all far more successful before they adopted any socialist policies at all. Sweden enjoyed the highest per-capita income growth in the entire world from 1870 to 1950. It was from the 1970s onward that the Scandinavian nations began their experiments in Democratic Socialism and they remained somewhat successful during this period but less so than previously. These nations built their welfare states on the wealth created by free markets; and in so doing began to reverse their success.

All the Scandinavian countries are market economies. Danish Prime Minister Lars Løkke Rasmussen finally got so tired of media claims to the contrary that he exclaimed: "I would like to make one thing clear. Denmark is far from a socialist planned economy. Denmark is a market economy." Sweden, however, did attempt the experiment of centrally planning their economy like The Soviet Union - and with disastrous consequences.

Image result for sweden and denmark

The Case of Sweden

Socialism nearly destroyed Sweden. Swedish government spending rose from a relatively modest 20% of GDP to 50% between 1950 and 1975. Taxes, public debt, and the number of government employees all expanded massively. By the 1980s the destructive effects of the Swedish experiment with socialism was completely apparent to everyone and the government had to attempt to jump-start the economy with a massive expansion of credit which resulted in economic chaos: stock market and real estate bubbles burst, and interest rates were pushed up to 500 percent by the Swedish central bank. By 1990 Sweden had fallen from the fourth place in international income comparisons to twentieth. The decline led to a revolt against the socialist regime. More economically liberal politicians sharply reduced income tax rates, abolished currency controls, deregulated bank lending, privatized several government enterprises, deregulated the retail, telecommunications and airline industries; and implemented deep government spending cuts. Sweden began to recover and is doing a lot better now (as I am sure you have all heard.) But Sweden's recovery was all thanks to free markets - and no thanks to socialism.

Despite Sweden's economic recovery after the mid-1990s it is still poorer than Mississippi, the lowest income state in the USA. A 2009 study by the Swedish Economic Association discovered that the Swedish economy had failed to create any new jobs in the private sector on net between 1950 and 2005. The actual unemployment rate in Sweden is still probably at least three times higher than the official government figures because many Swedes live off government sick benefit and early retirement and are not counted. Thousands of Swedes are paid by the government to participate in "labor market political activities" whose only purpose is to reduce the official unemployment rate. To speed along their recovery, Sweden has been privitising portions of it's healthcare, social security, and education sectors in an effort to heal them up from the incentives entailed in public ownership which always destroys the quality of services while ratcheting up the cost of provision. Private health insurance is booming in Sweden because of the inevitable rationing, shortages and long wait times which their highly socialised healthcare system has lead to. It may seem shocking but in Sweden the government instructed doctors to "prioritize" patients according to their status as future taxpayers. The elderly are at the bottom of that list since they are mostly retired and paying relatively little in taxes while receiving large shares of government services. It's a distressingly callous approach that can only make cool sense from the perspective of planners seeking to minimize expenses out of the public purse which different interests are all angling for. (So much for socialism doing away with competition.)

Sweden's experiment with socialism also destroyed its history of innovation. The great companies that came out of Sweden such Lidl, H&M, Volvo, Saab,  AstraZeneca, Electrolux and Ericsson were all founded in Sweden's free market period. After 1970, the establishment of new firms dropped significantly and many enterprises now survive purely on government contracts out of the public pocket rather than by indication that they are producing what consumers actually want. It was during the free market period when Sweden produced Alfred Nobel, inventor of dynamite, Sven Wingquist inventor of the self-aligning ball bearing, Gustaf Dalen who founded the gas company AGA, and Baltazar von Platen, who invented the gas-absorption refrigerator.

The Case of Denmark

Denmark, like the other Scandinavian nations, may have a large welfare state and public sector, but it also has a far freer economy than the US and many other western nations as I have mentioned. Denmark is only one place below America on the Economic Freedom Index and was previously one rank above it. It is the most free market of all the Scandinavian countries.

This does not mean Denmark has found the right balance, having "the best of both worlds" though.

The large welfare state and heaving public sector has lead to poor social consequences in Denmark, not good ones. Only the nation's relatively free market economy has compensating for the fact, as evidenced by the fact that similar policies have worked nowhere outside of Scandinavian countries: neither in Greece, nor France, nor Spain nor anywhere else. This is partly down to the culture of a hard work ethic that the Scandinavian countries have inherited from their history which required their people to survive the harsh climate. Unfortunately, as generations wear on these welfarist policies are warping the very culture that allowed them to work in the short term.

In Denmark more than a quarter of the working-age population (aged 18-66) is on the government dole; for every one hundred persons employed full time, there are about sixty working age on welfare. In many regions less than half of people are employed.  More than 1.5 million people live full-time on taxpayer-funded handouts; the other 4 million people in the country have to pay a marginal income tax rate of 55.6% (on incomes of 55,000$ and above), a 25% national sales tax, and a wide variety of other taxes. Danish economist Per Henrik Hansen estimated taxes in Denmark approach 70% of income when all is considered. It has been claimed that Denmark has a more regressive tax system than the US where a far higher percentage of the taxes fall on the rich.

It might come to a surprise to many on the left who are championing the Danish model (such as Bernie Sanders and his supporters) to discover out that many Danish voters are turning out to vote for more free market politicians, and even the Democratic Socialist Party and those further to the left are in agreement that this is a problem. The classic liberal (free market) Venstre Party was in power in a coalition with the Conservative People's Party from 2001 to 2011 and was elected on its own in 2015. They have gained massive support in making free market reforms to the welfare state and are carrying them out right now! The platform has cross-party support.

Denmark is following the example that Sweden has been laying out since the 1990s. They are undergoing massive welfare reforms because they acknowledge their huge welfare state has created massive dependency and started to shift their culture away from personal responsibility and the ancient hard work ethic they had inherited. This calls the final death knell of empiricism for Socialism as an ideology - but how long before the left will heed the sound?

The Real Economic Lesson to be taken from Scandinavia

The real lesson to be taken from Scandinavia is that socialism wrecks economies and culture. It erodes the work ethic of a nation over generations and it takes a long time for free markets to restore them to prosperity afterwards. In Scandinavia, these policies have been a disaster only mitigated by having economies that are relatively unregulated compared to Europe and America.

New Zealand also flirted with all the policies that Bernie Sanders and supporters want to copy from Scandinavia up until the 1990s as well. It didn't do much for them at all. Since the 1990s New Zealand liberalised their economy and have been far more prosperous; Australia are following suit. Hong Kong was poorer than most countries in Africa and has become one of the richest countries in the world per head in a generation thanks to free market policies. Singapore has also proven itself to be a modern economic miracle. None of the countries which adopted socialism, nor any of the highly statist economies in the developing world, have had results that compare to those of Hong Kong or Singapore in the same period - and many of them remain devastated.

Free markets have helped the poor more than anyone else as they take people out of the most abject poverty and dependency at once, giving them control over their own destiny rather than having to rely on unreliable government to hand them alms. Markets also create the wealth necessary to look after those who remain poor, which is why most of the world's poor would rather be poor in a market economy than a highly socialised one with big government.

We can learn from Sweden and Denmark, yes. We can learn that we don't need miles of regulations or occupational licensing in up to 800 professions which drive up the price of services and stop young people from getting jobs. We can learn that when it's easier to start a business, hire and fire people, and to cut through red tape that brings prosperity. We can learn that high taxes and high spending stunt rather than grow an economy. We can learn that well-intentioned welfarist policies do more to foster dependency than to help the poor in the long term. That is the hardest pill to swallow.

What we can learn from Scandinavia is what Sweden and Denmark have already learned from their experiments with socialism. Hopefully we will learn from them without repeating their mistakes.

The main sources for this article are Debunking Utopia by Dr. Nima Sanandaji, and The Problem With Socialism by Tom DiLorenzo, you can get these two books if you want to learn more.

Friday, 3 March 2017

Regime Uncertainty

A seductive (if poorly considered) critique of markets is the notion that they are so wildly unpredictable and inherently unstable that we need government to watch over them and intervene to mitigate their excesses. There is a great irony in this position which I will reveal.

Economist John Maynard Keynes (1883 – 1946) made perhaps the most famous case for this view, coining the term "animal spirits" to describe the irrational, impulse-driven whims of market-actors based on arbitrary expectations that could only cause instability. The idea itself seems to make sense because it's hard for intellectuals, who love chewing over ideas and coming up with bright plans, to see how a society could run coherently without a single plan. The truth is, market economies are actually planned - there is just no central plan. What happens on a market is that lots of individuals make little plans to roll out their bright ideas into the through businesses, charities, and other organisations, hoping to influence as many people as possible. The plans which prove successful on the small scale attract resources and grow steadily in their impact. Other planners emulate them and adapt their own plans in light of their success. Meanwhile those plans which prove to be failures never get far off the ground.

Image result for animal spirits

This means that, left to their own devices, markets have their own self-correcting mechanisms which Keynes appeared to have overlooked. While in any situation there may be entrepreneurs, investors, and consumers who do indeed make poor or irrational decisions and make mistakes (driven by their animal spirits) there will always be others who succeed as well. The mechanism of profit and loss allocates the pool of available capital to those producers who make good predictions as to what consumers (you and I) want over the long term and reallocate them away from those who use the badly. This limit the scope of damage caused by bad or incompetent decision-makers. Where people fail, the results of those failures will be limited to some small number of people. This can not be said of failures of government which might extend to affecting the entire society.

Now, here's the irony. Even allowing for Keynes his hypothesis that markets are inherently unstable, how can the prospect of intervention by government, at any time, into the economy do anything but make the market more unpredictable and make it more difficult for the "little planners" to make long-term decisions? Over the course of 20 years a government could change 5 or more times. With each change in administration the form of state interventions in the economy can change dramatically, as can the political philosophy driving it. Plans can be added or scrapped at any time. Government can increase or reduce taxes at whim, or increase or decrease spending. They can pass new tariffs, grant subsidies, institute licensing laws and regulations or scrap them. Government-mandated Central Banks (like The Bank of England or The Federal Reserve) can increase or decrease interest rates; expand the money supply or contract it. Plus what makes those calm and virtuous actors themselves immune to the influences of the animal spirits? Do they not too have emotional whims, not to mention voters and campaign contributors to please?

Yes, when the specter of government hangs looming over the economy conditions can rapidly and unpredictably change at any time, in countless ways and this can only exacerbate the problem that the Keynesians plan to solve. Economist Robert Higgs called this the phenomenon of "Regime Uncertainty", where investors fear it may be hard or even impossible to foresee the extent to which future government actions will alter the “rules to the game.” As a result, investors become averse to taking risk (much in the way that Keynes feared they might) not due to a lack of government intervention – but in anticipation of it!

Private investors have "skin in the game." Their own self-interest should motivate them to only take certain risks of personal loss, and investigate all the available information to make robust decisions. But public servants are forever fated to spending other peoples money on other people. The best people at making decisions with money are most likely not in government. They're probably out there in the free market making "Little Plans" to launch a new businesses or product that might one day spread out to the furthest reaches of the earth the way mobile phones are now reaching the world's poorest populations in Africa.

I'm in the process of writing a book called "The Errors of Keynes" if you would like to receive updates about it please grab my free eBook and you will get an update when it's good to go.