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.

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.

Free Market Environmentalism

The Excesses of Capitalism

The government - we are told - is necessary to protect us from the excesses of capitalism, and whatever gripes the average person might have about their elected officials, almost all of them can agree upon this.

But there's a problem with thinking the government can ever enter the economy as a fair referee rather than merely playing into the hands of whatever factions are most rich, powerful, and influential; because as soon as a corporations can make more money by angling for government favours than they can by serving customers that is exactly what they are going to do. Not necessarily because they are evil - but because it becomes the rational thing to do.

On an open market where only voluntary exchanges are permitted a business can only turn a profit by  providing something that the general buying public wants. No matter how greedy the corporate fat-cats may be, if they fail to 'cough up the goods' (and services) that people want they will go to the wall. [all puns intended] In this way the market forces otherwise self-interested people to apply their self-interest to social ends.

Critics may still complain about "tooth and nail" competition, but at least on a free market firms are competing to serve you better and win your disposable income. As soon as the government intervenes in the economy one thing is for sure: companies will compete for control over legislative bodies and the strings of the public purse. This is where the real "tooth and nail" begins.

According to The Sunlight Foundation for each of the 5.8 billion dollars spent by America's 200 most politically active corporations between 2007 and 2012 on federal lobbying and campaign contributions by they got $741 in return in kickbacks and benefits.

To pay for these kickbacks tax-payers were left $4.3 trillion dollars poorer - but that's not all.  $5.8 billion was spent in political gaming instead of invested in jobs and product development. These incentives drive companies to misallocate resources by making products that the general public doesn't want profitable, and products that they do unprofitable. In other words, the government has become the client of these corporations rather than their customers.

Firms might lobby or contribute to political campaigns to earn the exclusive right to provide government with their products. This will give them a huge advantage over competitors even if they are producing inferior or more expensive services. They can lobby for subsidies on their own goods or tariffs on cheaper or superior competitors.They can get the government to pass laws about who can and cannot operate in their sector.

Mandatory licenses, fees, reviews, huge stacks of forms, inspections, make it expensive for small start up businesses to enter the market and compete on an equal playing field. Companies spend millions of dollars on accountants, lawyers, actuaries and bureaucrats - not to mention tens of thousands of hours - to make sure they comply with the entangling webs of red tape, and make no mistake this harms the public. The costs are reflected in the price of products, and those are millions of dollars and tens of thousands of hours that are not being spent on more productive work that would benefit others. The rounds of "regulation" inflate corporate profits more and more, by cutting small firms out the market and directing sales to bigger firms who can afford specialists or whole departments to play the game.

By changing the incentive structure of the economy to favour profit through political influence over serving customers the government corrupts the market rather than moderating its excesses.

Beauty Salon Economics

One of the most fundamental things about economics which most people who are passionate about politics do not understand is that the economy is not just like a chess board where you can move one piece with deterministic and predictable consequences. On the contrary, an economy is an intricate fabric of interrelated institutions and actors all of whom act relative to one another. Any one move creates a cascade of domino effects. If the price of milk changes dramatically then orange juice sales might be affected - you just never know.

The role of a good economist is to be able to follow the threads of consequences liable to result from a policy so that the short-sightedness of policy-makers (and would-be policy makers) seeking some immediate and favourable end does not result in a multitude of negative unintended consequences into the bargain. (Clearly this goes to the very heart of why I called this blog Seeing the Unseen.)

Many policies can end up having the opposite effect from what is intended.

For example, supposing some of the fancy hair salons are getting irked because cheap salons are popping up everywhere and giving people poor quality haircuts. They're giving the whole industry a bad name. So a coalition goes to the government to pass standards and licensing laws in the hairdressing industry (in some places you currently need a license to braid hair.) That's going to improve the quality of haircut going around, right?

Not necessarily. Now all the hair salons have to send their employees to college for two years to get a license, and when they graduate they are expecting much higher pay because they just sunk two years into an education which they didn't see  any money during. Some of them went out drinking with their student loans, the rest still had rent to pay, and most of them accumulated debts. What's more the salons need to consult special accountants or lawyers to make sure they can prove that they are adhering to the new regulations - even the ones who are way ahead of the law and already providing far better conditions and services than what has been mandated. These professionals often charge upwards of $100 an hour. Many independent salons simply can't afford the increase in costs and have to close down entirely; others have to jack prices up to pay for the extra costs of compliance and staff. In some areas only one salon is left standing and since people have less choice they can afford to let standards slip.

With the price of haircuts going up lots of people decide to go without. They cut their friends hair at home, badly. Or they get pretty good at it and don't have to go to the hairdressers any more but take longer to prepare for going out and miss out on the chat and gossip. What's more everyone who does still go for a professional haircut has less left over to spend on a manicure or something else nice, so other industries also suffer. You can add to that the marginal increase in taxes to pay the civil servants in the new public body which acts as a regulator for the hairdressing industry. Now those people are involved in busy work instead of making commodities and providing services that improve people’s living standards in real terms and rather than paying into the public purse they are a net drain on it.

I choose a relatively trivial example (no disrespect ladies) because it's perfectly illustrative of how a seemingly simple and innocuous policy suggestion - mandatory hairdressing licenses - can generate more than its fair share of consequences. An alternative is for a series of private watchdogs to certify only hairdressers that meet their standards and give the ones who do an official number and sticker to put in their window; because they are competing they have to keep the costs of certification to a minimum (no $100 an hour fees), and people who are not fussed to pay extra for a certified cut can take a risk on somewhere cheaper or go by word of mouth.

Occupational licensing makes for an interesting case because it is almost ubiquitously considered in the public interest and even necessary to prevent catastrophe, and yet there is actually zero evidence that it leads to a higher quality of service provision. Zilch!

Usually all it means is that instead of taking budget options people with fewer means have to go without any services at all! This is a topic to which we will have to return to in more detail, check back! :)

Universal Basic Income: For and Against

Talk given by me at event in Glasgow, enjoy.

Writing this book was a lot of fun because it gave me the opportunity to draw upon a wide range of research and writing I had done earlier and pull the strands together like a nebula forming into a star. I think expanding upon my UBI talk made for a far more interesting end product (god, I sound like an economist) than a simple collection of essays would have. I endeavoured to bring my writing (and speaking) together in a Best Of (to continue my “band-on-a-reunion-tour” analogy from the introduction) in one place, before building upon it with unique bonus material. I think the result makes a good stand-alone piece, however, if you can’t get enough of my writing (you’re only human after all), or would like to see where the book all began (as far back as 10 years ago!) here are links to the source material I drew upon.


Think Like an Economist! Presentation given at Scottish Libertarian Students event (2017): https://youtu.be/Y6UpE7LlNrk

Corporatism and Reforming the Welfare State, YouTube Video (2008): https://youtu.be/nAfpGZWJOQQ

3rd World Aid vs. Exploitation of the Third World, YouTube Video (2008): https://www.youtube.com/watch?v=cmVEotnLaTA

Misanthropic Myths about 3rd World Poverty Debunked, Article (2017): http://scottishlibertarians.com/thirdworld/

The Hope of Affordable Housing, Article (2016):
http://scottishlibertarians.com/the-hope-of-affordable-housing/

We Shouldn’t Even Need a Basic Income to Meet Everyone’s Needs!, Article (2016): http://scottishlibertarians.com/basicincome/

What Libetarianism can do for The Poor, Article (2017):
 http://scottishlibertarians.com/poverty/

Living Wage : The Road to Hell… is paved with good intentions., Article (2015): http://scottishlibertarians.com/living-wage-the-road-to-hell/

Why Mechanisation Does Not Cause Unemployment…, Article (2016): http://scottishlibertarians.com/mechanisation/

Labour Laws, Podcast (2017): https://soundcloud.com/scottishliberty/workers-rights

Beauty Salon Economics, Article (2017):
http://seeingnotseen.blogspot.co.uk/2017/01/beauty-saloneconomics.html

Occupational Licensing, Article (2017):
http://seeingnotseen.blogspot.co.uk/2017/

Why Do Markets Work? Public vs. Private, YouTube presentation (2018): https://www.youtube.com/watch?v=kRjwgd2jdIs

That Which is Seen and That Which is Not Seen

In economics we talk about the fallacy of the seen and the unseen. For example when you tax the population for a government make-work project you create jobs but as many or more jobs are being lost because the population doesn't have that money to spend in the shops. Well talk about a laboured analogy, but everyone posts about the stars who are dying, yet no one sees the stars that are being born!

RIP. George Michael and Carrie Fischer, et al.

Why The State will Not solve Social Problems

The impulse of the state is not to solve social problems but to create as many dependents as possible, including a bloated public sector full of Marxists and as many people as possible on welfare who they can then turn on whenever they need someone to blame for their own excesses. That is why the size of government grew massively even under so-called free market Thatcher who made hand-outs to big business and sent military spending through the roof. Every dependent will make justifications for the existence of the state as a necessary evil and attack the free market which takes people out of poverty. The natural state of everyone who is born is poverty; all wealth was created by individuals for themselves or to trade with other people for something which they agree upon in a voluntary exchange. Voluntary exchange enriches both parties as each trader values what they get from the trade more than what they part with, and so trade takes people out of poverty not government. Government retards this organic process by putting restrictions on who can trade with whom under what circumstances and passing an ever increasing litany of laws that make it impossible for poor people to find employment so that many people will have to compete for few jobs and accept whatever conditions are given to them. This creates dependency upon which government survives. To complete the trick the government directs the attention of the oppressed to their crappy bosses rather than the conditions which created the crappy bosses, those state interventions which restricted the number of jobs.

The government cannot solve social problems because the government lives on social problems. If tomorrow everyone woke up in a world without crime then what need for a large police force? In a world with little poverty and many routes out of poverty, then what need for huge welfare programs and government bureaucrats to administer them? If there wasn't a shortage of medical staff pushing the price of medical care through the roof then who would tolerate a million people on NHS waiting lists? If we didn't fear any enemies in the Middle East or Russia what need for a large military and curtailments on civil liberties? Who would need government without social problems? Who would want it? It is in the interests of government to perpetuate social problems internally and create enemies abroad, then blame all of this on capitalism and the free market so the average individual will call on government to save them.

If we want to solve social problems we need to dig in with our own hands and start helping. We can volunteer, create organisations, or support organisations that are already doing good work. 

A bunch of looters!

States are a cancerous growth on society. A bunch of looters. They enjoy the de jure privilege of not having to gather resources and property the way all other people and institutions do by request or by voluntary exchange. They bribe half the electorate to vote for them with free stuff and blackmail the other half with dependency and fear of starvation. 

They assimilate already existing institutions and make them worse. The NHS is an expression of the general will of the people to have universal healthcare. The state assimilates that and creates waiting lists a million lives long.

They supplanted organic institutions for providing welfare in the community and replaced them with a system that condemns generations to poverty.

Their moral and philosophical basis is so vacuous and without merit that they had to create a religion called democracy - the most prevalent religion, and least appraised for its virtues (or lack thereof as would more accurately be the case.) Their intellectual vassals coined bullshit theories like "the social contract" to post-fact rationalize their desire to run the lives of others by force, then disseminate them through an education system which teaches a false version of history designed to make people see bondage as freedom and freedom as slavery. More than ever, academics play the role that the churches played in the dark ages - they are apologists for state power. On one hand they claim individuals have moral obligations to government to which they did not consent, on the other they deny their right to their lives and the product of their labour by appealing to Hume's Law and post-modern doctrines which claim that no universal morality between men can exist. Universities tell people what they should learn and what to think rather than help them become fully fledged, skilled individuals with brilliant critical faculties, self-esteem, and strong ethics.

Once states are abolished people will look back on them the way we look back on slavery.

Workplace Safety

It's widely believed that it was the intervention of government and labour unions which is responsible for improving safety conditions in factories and other industries, but that is not accurate. This graph demonstrates that workplace fatalities were already very much on the decline before OSHA (the Occupational Safety and Health Administration) was even founded in America:



Tom DiLorenzo wrote in Capitalism "Enriches the Working Class":
"Capitalism has also made the workplace safer. In relatively “dangerous,” strenuous, or dirty jobs, employers must pay a wage premium because relatively few people want such jobs. Economists call this a “compensating difference.” The man who rides on the outside of the garbage truck at daybreak, in the winter, in the northern states, does so because he makes a very good salary – better than any of his alternatives. Profit-seeking capitalists have always understood that they need to pay more to get people to perform risky or dangerous work. Therefore, they have also always understood that there is profit in making the work place safer. A safer workplace requires a lesser compensating difference. Lower wages paid to the workers can mean higher profits for the capitalist. Thus, the American workplace had become safer and safer for generations before the Occupational Safety and Health Administration (OSHA) was established in the 1970s. Indeed, OSHA has often reduced workplace safety with its clumsy and stupid workplace rules enforced by government bureaucrats with no knowledge of the specific work that they are regulating. "

The government can intervene to bring about workplace safety faster, but this will not be without any negative consequences to their employees. The dictates of government will displace private efforts. Once the state declares that they are in charge of safety businesspersons are going to leave it up to the experts. Rather than investigating what investments will improve safety most effectively, they will spend lots of money on whatever the central planners at OSHA dictate; and if these are harebrained ideas these resources will be misallocated and go completely to waste.

Do you really think those workplace safety advancements were paid for out of the factory owners pockets? Well they weren't. They were paid for out of the workers pockets. Employers have a certain amount to budget for labour and it makes zero difference to them whatsoever if that gets spent on wages, health and safety, health insurance, company cars or anything else the employees might want to receive as payment in kind. On a free market employees will tend to get roughly the package of spending on them that they want because if a workplace is too dangerous they can go somewhere across the road that pays them less and spends more on safety. As recent empirical evidence of this the economist Benjamin Powell actually went to factories in the poorest countries in the world and asked them if they would like better health and safety, shorter hours, and a long list other benefits; overwhelmingly they said yes to everything - who wouldn't? - Unless those benefits meant less pay. In which case they declined them all. This is why workplace safety was shoddy when people were poor, but improved as people got richer. When you're broke you'd rather your employer spent the money on your wage than health and safety. However, as your standard of living increases safety at work becomes more of a priority so your expectations on your employer go up. This would all arranged voluntarily even without legislation from government. In fact it was! If employers were responsible for injuries or deaths they may have been sued for damage in common law courts for having caused harm or loss.

The best defense of workers rights is having the largest choice of employers available as possible. All of the things which the left think will help workers reduces their number of options by making employing people profitable to less employers and therefore reducing the options of workers rather than increasing them. The consequence of having less jobs to go around is that low skilled workers have to accept whatever is going on whatever terms are offered to them, and often tolerate crappy bosses. On a free market, some people might have to tolerate a less well paid job in the short term, but if they have a bad boss or do not like the safety conditions at work they can easily walk into a job elsewhere because anyone can employ them. This is a system of spiritual advancement. A wise individual can choose the job that will teach them the most skills, then move to the next one, and onto the next, and keep on moving from job to job gathering skills until they can get a management position, start their own business, or become a staff trainer or consultant themselves. It affords the maximum opportunity for class mobility. Each well-intentioned socialist policy: the minimum wage, maximum regulations, workplace safety, - takes a big slice out of the pie of possible jobs available and reduces the prospects of the poor to become wealthy in the long term.

Government is a Trojan Horse for Environmental Destruction

For all its faults one thing the Government does is protect the environment from profit-seeking corporations, right? Without government to stop them,corporations would just lay waste to the environment in pursuit of the bottom line. That's the popular view.

An investigation of history might yield some surprises.

There was a time where the courts ruled by common law and were held separately and above the government. When an industrialist polluted  a stream or the air in a way that caused physical or financial harm to his neighbors, the courts would force them to pay reparations and a penalty. This in itself did a pretty good job of deterring people from polluting,

Until the latter part of the nineteenth century this form of law, where the right of every individual were considered, was successful, it stated that if you caused harm or law to another person it was your duty to restore them to their original condition and compensate them. Then, as documented by Morton J. Horowitz in his two-volume treatise named The Transformation of American Law, the legal system began to change. Industrialists went to the government to have it changed.to a more collectivist philosophy where lawyers and law makers became increasingly concerned with what was termed “the common good."

"Under the individualist view the law should protect everyone's right to life, liberty and property – which includes the right not to have your body or property damaged by the pollution of others. The new legal system however argued that no individual or group of individuals should stand in the way of the economic progress of the entire community. Therefore a few victims of pollution should not interfere with economic development prospects that would benefit "The greater good.”" (Tom Dilorenzo)

The government came back and told the people that while the factories were polluting and there would be some victims the industry served 'the common good' and therefore people just had to accept the pollution as a fact of life 'in the greater interests of society as a whole' and all those high minded phrases the left have since appropriated. When you consider history you will see that it is government that made the way for industry inflicting damage on others.