Tag: capitalism

The Terrible, Horrible, No Good, Very Bad Falling Gas Prices

A left-coast writer named Mark Morford thinks that gas prices falling to $2 a gallon would be the worst thing to happen to America. After all, he says, the wrong people would profit: oil companies (why would oil companies profit from lower gas prices?), auto makers, and internet retailers like Amazon that offer free shipping.

If falling gas prices are the worst for America, then the best, Morford goes on to say, would be to raise gas taxes by $6 a gallon and dedicate all of the revenue to boondoggles “alternative energy and transport, environmental protections, our busted educational system, our multi-trillion debt.” After all, government has proven itself so capable of finding the most cost-effective solutions to any problem in the past, and there’s no better way to reduce the debt than to tax the economy to death.

Morford is right in line with progressives like Naomi Klein, who thinks climate change is a grand opportunity to make war on capitalism. Despite doubts cast by other leftists, Klein insists that “responding to climate change could be the catalyst for a positive social and economic transformation”–by which she means government control of transportation, housing, and just about everything else.

These advocates of central planning remind me of University of Washington international studies professor Daniel Chirot assessment of the fall of the Soviet empire. From the time of Lenin, noted Chirot, soviet planners considered western industrial systems of the late nineteenth century their model for an ideal economy. By the 1980s, after decades of hard work, they had developed “the most advanced industries of the late 19th and early 20th centuries–polluting, wasteful, energy intensive, massive, inflexible–in short, giant rust belts.”

Morford and Klein want to do the same to the United States, using climate change as their excuse, and the golden age they wish to return to is around 1920, when streetcars and intercity passenger trains were at their peak (not counting the WWII era). Sure, there were cars, but only a few compared with today.

Newsweek: Back in Print, Confused as Ever

Dumb arguments against libertarianism are increasing, as guardians of the expansive state begin to worry that the country might actually be trending in a libertarian direction. This may not be the dumbest, but as Nick Gillespie said of a different argument two weeks ago, it’s the most recent:

‘You Ready to Step Up?’

The deadly drug war in Long Island’s Hempstead ghetto is a harrowing example of free-market, laissez-faire capitalism, with a heavy dose of TEC-9s
To be fair, author Kevin Deutsch never uses the terms “laissez-faire” or “free-market” in his detailed article, so we should probably direct our disdain at Newsweek’s headline writers. Deutsch does portray the second-ranking guy in the Hempstead Crips as a businessman seeking to “recruit talent, maximize profits and expand their customer base.” But even the drug dealer gets the difference between selling prohibited substances and doing business in a free market:
“We’re looking to market, sell and profit off drugs the way any business would handle their product,” Tony says. “Only our product is illegal, so more precautions need to be taken. It’s all systematic and planned, all the positions and responsibilities and assignments. All of that’s part of our business strategy. It’s usually real smooth and quiet, because that’s the best environment for us to make bank. But now, we at war, man. Ain’t nothing quiet these days.”
Deutsch describes the competition between the local Crips and Bloods in terms not usually seen in articles about, say, Apple and Microsoft or Ford and Toyota:
As for strategies, they seem to have settled on a war of attrition, aiming to kill or maim as many of their enemies as possible….
 
They’re far better armed and willing to use violence than the smaller neighborhood cliques scattered throughout Nassau County….
 
They’re also able to keep out other competitors through use of brute force….
 
It’s one of hundreds of similar conflicts being fought by Bloods and Crips sets throughout the country. These battles breed shootings, stabbings and robberies in gang-plagued, low-income neighborhoods each day. 
These are, of course, just the sorts of consequences that libertarians and economists expect from prohibition. As Tim Lynch and I wrote in the Cato Handbook on Policy a decade ago,

drug prohibition creates high levels of crime. Addicts commit crimes to pay for a habit that would be easily affordable if it were legal. Police sources have estimated that as much as half the property crime in some major cities is committed by drug users. More dramatic, because drugs are illegal, participants in the drug trade cannot go to court to settle disputes, whether between buyer and seller or between rival sellers. When black-market contracts are breached, the result is often some form of violent sanction, which usually leads to retaliation and then open warfare in the streets.

Jeffrey Miron of Harvard’s economics department and Cato made similar points in his book Drug War Crimes, as have such economists as Milton Friedman and Gary Becker. Miron also noted that prohibition drives up the prices of illegal drugs, making the trade attractive to people with a high tolerance for risk. And so in that sense, it’s true that some people will usually enter the prohibited trade – in alcohol, gambling, prostitution, crack, or whatever – and will employ some techniques that are also used in normal business enterprises. As Tyler Cowen says, there are markets in everything. Given our natural propensity to truck, barter, and exchange in order to improve our own situation, we can expect people to step into any trade, prohibited or not. Better that such trade should take place legally, within the rule of law, than underground, where violence may be the only recourse in disputes.

When the government bans the use and sale of a substance, and imprisons hundreds of thousands of people in an attempt to enforce that prohibition, that’s not “laissez-faire, free-market capitalism.” Duh. 

Kindly Inquisitors

This week Jonathan Rauch celebrates the new, expanded edition of his book Kindly Inquisitors: The New Attacks on Free ThoughtHe’s also guest-blogging at the Volokh Conspiracy, itself newly hosted at the Washington Post. In his first post, Rauch sums up a key point of his book and also why its reissue is so timely:

Over the past 20 years, the idea that minorities need protection from hateful or discriminatory speech has gained ground, both in American universities’ speech codes and in national laws abroad. In fact, I argue, minorities are much better off in a system that protects hateful or discriminatory speech than in a system that protects them from it.

Kindly Inquistors offers a moral defense of free inquiry, with a focus on how minorities fare under different approaches to controversial speech. Rauch concludes that when individuals disagree, the only proper approach is the “checking of each by each through public criticism.” 

He terms this approach liberal science, and he recommends it not just in science, but in public policy. One of the most interesting facets of Kindly Inquisitors is the way that Rauch links the free inquiry of science to the free inquiry found in liberal democratic societies; both, he argues, are also akin to the free inquiry found in capitalism.

In all these areas, free inquiry can nevertheless cause genuine harm. Why not restrict, just a bit, if it will prevent some suffering? In the book, Rauch answers:

The truth is that liberal science demands discipline as well as license… It does not give a damn about your feelings and happily tramples them in the name of finding truth. It allows and – here we should be honest – sometimes encourages offense. Self-esteem, sensitivity, respect for others’ beliefs, renunciation of prejudice are all good as far as they go. But as primary social goals they are incompatible with the peaceful and productive advancement of human knowledge. To advance knowledge, we must all sometimes suffer. Worse than that, we must inflict suffering on others.

For many, these words will not be welcome. And for a few truly loathsome people, they will be all too welcome. Undeniably, words a lot like these have been used as a pretext to hurt, which they should not be.

Yet we classical liberals have always welcomed the progress that comes from free minds, from the free exchange of ideas, and from the freedoms of travel and commerce, even if at times they bring disruption, embarrassment, or loss. In science, in public opinion, and in the marketplace, there will always be failures. And yet for a society to succeed, such failures cannot be avoided.

Our faith in mankind’s ability to find and act upon the truth is key: We trust that the process of inquiry, with its defeats as well as its victories, will bring a better and better life for us all. 

The Great Fact of Economic Growth, in Three Glimpses

In Bourgeois Dignity: Why Economics Can’t Explain the Modern World, economic historian Deirdre McCloskey writes about the “Great Fact” – the enormous and unprecedented growth in living standards that began in the western world around 1700. She calls it “a factor of sixteen”: we moderns consume at least 16 times the food, clothing, housing, and education that our ancestors did in London in the 18th century. Two new books help us to understand what that means.

In Sunday’s Washington Post, Jonathan Yardley reviews Flyover Lives, a family memoir by Diane Johnson. She found diaries from some of her Midwestern ancestors, and Yardley notes what they tell us:

It must be just about impossible for a denizen of middle-class 21st-century America to imagine the toil and suffering that Catharine Martin [born 1800] and her counterparts underwent every day: living in crude houses — mere huts when they first settled in Illinois and elsewhere — slaving at open fires to prepare food for their families, and worst of all watching children fall ill and having nothing in their powers to help them: “Within a year of her marriage, with the fated fertility of women then, Catharine had her first baby, and named her Catharine Anne, after herself. They called her Sissie. This baby was followed by Charlotte Augusta in 1830 and Martha Olivia in 1831. When they were one, three, and five years old, all three little girls died in the space of a week or two.” Catharine herself was ill but survived to write many years later: “When I got up, my house was empty, three little prattlers all gone, not one left.”

This isn’t so long ago. Catharine Martin was the great-great-grandmother of Diane Johnson. Go back another century, and read about 18th-century life in another new book, Three Squares by Abigail Carroll:

Invited to dine with a ferryman and his family, [a 1744 traveler from Maryland to Maine] declined. He described the meal: “They had no cloth upon the table, and their mess was in a dirty, deep, wooden dish which they evacuated with their hands, cramming down skins, scales, and all. They used neither knife, fork, spoon, plate, or napkin because, I suppose, they had none to use.”

By the standards of the age, the ferryman’s repast was ordered: “Only about a third of the families in seventeenth-century Virginia had chairs or benches, and only one in seven had both,” writes Ms. Carroll. Only about a quarter of the early Virginian houses had tables.

And finally, I note an older book on my own Scottish ancestors, The Scotch-Irish: A Social History by James G. Leyburn:

The squalor and meanness of [lowland Scottish] life around 1600 [or 1700] can hardly be conceived by a person of the twentieth century. A cluster of hovels housed the tenants and their helpers….A home was likely to be little more than a shanty, constructed of stones, banked with turf, without mortar, and with straw, heather, or moss stuffed in the holes to keep out the blasts….The fire, usually in the middle of the house floor, often filled the whole hut with malodorous clouds, since the smoke-clotted roof gradually stopped the vent-hole. Cattle were tethered at night at one end of the room, while the family lay at the other end on heather piled upon the floor….Vermin abounded…skin diseases…Infectious diseases were propagated readily.

According to scholars such as Angus Maddison and Brad DeLong, GDP per capita hardly rose for thousands, or tens of thousands, of years before the emergence of capitalism. And then after 100,000 years of stagnation (by DeLong’s estimates), around 1750 capitalism and growth began, first in Northern Europe and the American seaboard, and spreading ever since to more parts of the world. That is, the existence of relatively free markets is the reason we don’t live like my Scottish ancestors. This is indeed the Great Fact of the modern world. We should celebrate it, even as we work to extend the benefits of markets to people and nations who don’t yet enjoy as much capitalism as they should.  

Immigration Does Not Decrease Economic Freedom

A common criticism of immigration reform (here, here, and here) is that it will decrease economic freedom in the United States, by increasing the voting pool for the Democratic Party.  Leaving aside the issue of which party supports economic liberty, if any, it’s important to see what the actual impacts of immigration are on economic freedom in the United States and the world.  The political effects of immigrants after they arrive are less certain than the economic benefits.  Do immigrants decrease economic freedom in their new countries?  The bottom line: fears of immigrants decreasing economic freedom seem unfounded.

Since 1980, wealthy countries have seen rises in immigrant populations.  Immigrants are drawn to economic prosperity, higher wages, and better standards of living so it’s not surprising that wealthier countries have higher percentages of immigrants.  I excluded numerous small countries and petro-states like the UAE and Kuwait from the analysis.

I looked at the 25 wealthiest nations in the world in 1980 (by per capita GDP PPP) and considered their economic freedom rating and the percent foreign born.  I then tracked those same countries every 5 years until 2010.  Here are the averages for all 25 nations:

Who’s Afraid of School Profits?

Should there be a separation of school and profit? Many opponents of education reform seem to think so.

Case in point, a blog post at the Washington Post yesterday decried “outside forces that want to make big profits on the backs of our nation’s most vulnerable children.” Setting aside that the vast majority of private schools are nonprofit, the author apparently misses the fact that parents choose to send their kids to these schools. (Does it make sense to complain that other businesses are profiting “on the backs” of their paying customers?) In order to persuade parents to switch to private schools, they must offer parents something that the free-to-attend government schools do not. Even when a school choice program covers the full cost of private school tuition, the parents would merely be financially indifferent. To motivate parents to choose something other than the default government school option, private schools still must offer something better.

Moreover, it is absurd to think that profit—in the sense of financial gain—is limited only to the for-profit sector. Do teachers, principals, and other school staff from janitors to bus drivers “profit” from their salaries or wages? What of the profits made by the corporations that publish the textbooks that students read? Or construct school buildings? Or manufacture desks, whiteboards, pens, pencils, and playgrounds? Whether government- or privately-run, nearly every adult involved in the formal education process is earning a “profit” short of the parents who volunteer to chaperone the high school dance.

Those who denounce “profits” in education simply don’t understand the role of profits in a market. Perhaps they are confused because in the government-run education system with which they are familiar, there is little connection between financial gain and meeting the needs of students. In a competitive market, by contrast, profits (and, just as importantly, losses) provide valuable information. As explained in Herbert Walberg and Joseph Bast’s excellent book, Education and Capitalism: How Overcoming Our Fear of Markets and Economics Can Improve America’s Schools (which is celebrating its 10th anniversary):

In a capitalist economy, profits are the reward earned by firms that maximize the quality of services and goods, minimize overhead and bureaucracy, motivate their workers to achieve high and consistent levels of productivity, and avoid unnecessary expenditures. Successful firms sell better, cheaper, or better and cheaper products and services than do other firms. Customers notice, and business gradually shifts from inefficient to efficient firms. […]

Low-performing government schools don’t gradually lose customers and face the threat of closure, the way an inefficiently run business does. As a result, there is little urgency for reform. Their assets do not move from the control of those who have misused them into the hands of others who could do a better job. (Pages 98-9)

In our existing education system, only the financially well-off can afford to live in the expensive districts with high-performing government schools or to pay for private schooling. Without school choice programs, low-income families are locked out of these markets. Instead, their only option is the local, assigned, government school. If I blogged for WaPo, I might say that these underperforming schools are built on “the backs of our nation’s most vulnerable children.”

The Rising Cost of Labor — a Triumph for Capitalism

Articles on page A7 and A8 of Saturday’s Wall Street Journal, about rising wages in China and France, confirm something that I learned from Julian Simon. As the Journal reported:

The 14% wage rise for private-sector workers in 2012, reported by China’s National Bureau of Statistics on Friday, represented an acceleration from 12.3% in 2011.

And:

With high labor costs eating into his bottom line, Mr. Madec uses frozen ingredients—and even complete main courses—for the dishes served at Les Templiers…. a steady increase in labor costs and food prices has fueled an unexpected phenomenon: Many restaurants can no longer afford to prepare meals from fresh ingredients in their own kitchens.

And what’s the lesson I learned from Julian Simon? As I wrote in Libertarianism: A Primer,

Over the long run, in real terms, the only price that consistently seems to rise is the price of human labor.  Looking back a hundred years or so, we see that prices of goods–from wheat to oil to computers–have fallen, while the real wage rate has quintupled in 50 years.  The only thing getting more scarce in economic terms, that is, relative to all other factors, is people.

 

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