Topic: Political Philosophy

Making Work, Destroying Wealth

Journalists are telling us that John Maynard Keynes, the intellectual inspiration of the New Deal and its tax-and-spend philosophy, is all the rage again. The Wall Street Journal offers an interesting vignette on Keynes’s view of how to create jobs:

Drama was a Keynes tool. During a 1934 dinner in the U.S., after one economist carefully removed a towel from a stack to dry his hands, Mr. Keynes swept the whole pile of towels on the floor and crumpled them up, explaining that his way of using towels did more to stimulate employment among restaurant workers.

Now I should say that various people report this story, including Ludwig von Mises, but no one cites an original source. Assuming it’s true, though, it just seems to underline the absurdity of the whole “make-work” theory that is back in vogue. Keynes’s vandalism is just a variant of the broken-window fallacy that was exposed by Frederic Bastiat, Henry Hazlitt, and many other economists: A boy breaks a shop window. Villagers gather around and deplore the boy’s vandalism. But then one of the more sophisticated townspeople, perhaps one who has been to college and read Keynes, says, “Maybe the boy isn’t so destructive after all. Now the shopkeeper will have to buy a new window. The glassmaker will then have money to buy a table. The furniture maker will be able to hire an assistant or buy a new suit. And so on. The boy has actually benefited our town!”

But as Bastiat noted, “Your theory stops at what is seen. It does not take account of what is not seen.” If the shopkeeper has to buy a new window, then he can’t hire a delivery boy or buy a new suit. Money is shuffled around, but it isn’t created. And indeed, wealth has been destroyed. The village now has one less window than it did, and it must spend resources to get back to the position it was in before the window broke. As Bastiat said, “Society loses the value of objects unnecessarily destroyed.”

And the story of Keynes at the sink is the story of an educated, professional man intentionally acting like the village vandal. By adding to the costs of running a restaurant, he may well create additional jobs for janitors. But the restaurant owner will then have less money with which to hire another waiter, expand his business, or invest in other businesses. Before Keynes showed up in town, let us say, the town had three restaurants among its businesses, each with neatly stacked towels for guests. After Keynes’s triumphant speaking tour to all the Rotary Clubs in town, the town is exactly as it was, except the three restaurants are left to clean up the disarray. The town is very slightly less wealthy, and some people in town must spend scarce resources to restore the previous conditions. The man built an economic theory on this!

Now we are told that “Keynes is back,” and we need a new New Deal, and the Obama administration is going to create millions of jobs by shuffling money through the federal government. And the theoretical underpinning of this plan comes from a man who thought you could stimulate employment by breaking things.

As Jerry Jordan wrote in the Cato Journal, the real challenge for society is not creating jobs but creating wealth – that is, a higher standard of living for more people. There are many destructive ways, beyond messing up the towels in a restroom, to create jobs:

I am reminded of a story that a businessman told me a few years ago. While touring China, he came upon a team of nearly 100 workers building an earthen dam with shovels. The businessman commented to a local official that, with an earth-moving machine, a single worker could create the dam in an afternoon. The official’s curious response was, “Yes, but think of all the unemployment that would create.” “Oh,” said the businessman, “I thought you were building a dam. If it’s jobs you want to create, then take away their shovels and give them spoons!”

President-elect Obama proposes that the federal government “create or save” jobs by spending upwards of $600 billion. Where would this money come from? If it comes from taxes, it will be taken out of the more efficient private sector to be spent in the less efficient government sector, and the higher tax rates will discourage work and investment. If it is borrowed, it will again simply be transferred from market allocation to political allocation, and our debt burden will grow even greater. And if the money is simply created out of thin air on the balance sheets of the Federal Reserve, then it will surely lead to inflation.

There is no magic road to wealth. You have to work, save, and invest. And when the government lures individuals and businesses into making bad investments with cheap money, the malinvestment has to be liquidated. Avoiding that truth, prolonging the process of adjustment, is a good way to turn a recession into a depression. And you can’t get economic growth back by breaking windows, throwing towels on the floor, or spending money you don’t have.

Helen Suzman, R.I.P.

Helen Suzman, the longtime leader of the parliamentary opposition to apartheid, has died at 91. The Times of London writes:

Helen Suzman had a special place in South African history, being generally recognised as the most effective parliamentary fighter against apartheid policies.

For 13 years - from 1961 to 1974 - she was the sole representative in Parliament of the liberal Progressive Party, forerunner of the Democratic Party.

In South Africa they knew the difference between liberals and leftists. Plenty of leftists and communists opposed the National Party and its apartheid system. But so did liberals like Suzman, people committed to human rights, freedom of thought, and a market economy. She did not forget her liberalism when apartheid finally fell and the African National Congress came to power. She continued to speak out against repressive policies and the Thabo Mbeki government’s continuing support for Robert Mugabe.

I loved reading about her quick wit in parliamentary debates. She sent the minister of law and order a postcard from the Soviet Union, saying, “You would like it here. Lots of law and order.” Once she told a government minister to go into the black townships and see their appalling conditions for himself. He would be quite safe, she said, if he went “heavily disguised as a human being.” In a famous exchange a certain minister shouted: “You put these questions just to embarrass South Africa overseas.” To which she coolly replied: “It is not my questions that embarrass South Africa – it is your answers.” When an Afrikaner in Parliament sneered at her Jewish roots and asked what her ancestors were doing when his were bringing the Bible to the “savages,” she snapped, ”They were writing the Bible.”

In 1989 Helen Suzman was a Distinguished Lecturer at the Cato Institute. See a picture on page 55 of this very large pdf of our 25-Year Annual Report. Her remarks were reprinted in Cato Policy Report and then in Toward Liberty, our compilation of essays from our first 25 years, and can be read here.

On the first day of the new year, the world has lost one of its great champions of freedom. May she inspire many more.

Obama’s Not-So-Centrist Cabinet

Journalists continue to insist that President-elect Obama has named a largely centrist Cabinet. But they’re clinging to a storyline that might have been true two weeks ago but no longer is. Obama’s national security team — Hillary Clinton, Robert Gates, and James L. Jones — and his economic team — Lawrence Summers, Tim Geithner, Christina Romer, and Bill Richardson — could be regarded as centrists, or at least as centrist Democrats.

But as the Cabinet selection process went on, Obama increasingly named left-wing activists to jobs in which they could carry out his ambitious plans to “transform our economy” and be the 21st-century Franklin Roosevelt. Tom Daschle at HHS wrote a book on how we need a Federal Health Board to manage and regulate every aspect of our health care. Hilda Solis at Labor is a sponsor of the bill to eliminate secret ballots in union authorization elections and of heavy regulatory burdens on business. She opposed the Central America Free Trade Agreement and generally opposes free trade. Shaun Donovan worked on affordable housing issues in the Department of Housing and Urban Development during the Clinton administration — just the policies that led to the mortgage crisis and then the general financial crisis. His reward for a job well done? He’s coming back as secretary of HUD.

White House science adviser John Holdren is an old-time “running-out-of-resources” Paul Ehrlich cohort who disdains economics and famously lost a bet with Julian Simon on whether the prices of natural resources would rise, reflecting growing scarcity. He and Steven Chu as Secretary of Energy; former New Jersey Department of Environmental Protection chief Lisa Jackson as the head of the Environmental Protection Agency; and Carol Browner, former administrator of the Environmental Protection Agency under President Bill Clinton, as the White House’s “energy/climate czar,” are all global-warming catastrophists who see an urgent need to impose crushing burdens on the economy in the name of influencing the climate a century from now.

The choice of Tom Vilsack to be secretary of agriculture is said by the Washington Post to be an example of Obama’s moderation and intention to balance competing interests. You see, he’s popular with “groups representing big agricultural interests, which praise him for his support of biotechnology and subsidies for corn-based ethanol.” But also with groups that want to shift Ag dollars to smaller farms. So the question to be decided is who gets the gravy, not whether the gravy will be ladled out by Washington. There doesn’t appear to be anyone in the Obama Cabinet who will speak for the taxpayers’ interest. Or who will argue that it would best for the whole country to let the market work and not have the government pick any winners or losers.

Sometimes journalists just don’t seem to reconcile the “centrist” claim with their own understanding of Obama’s intentions. The Los Angeles Times, for instance, begins its article, “The Cabinet that President-elect Barack Obama completed on Friday is a largely centrist and pragmatic collection of politicians and technocrats without a pronounced ideological bent.” But two paragraphs later the authors note:

Obama wants this Cabinet to market and put in place the most dramatic policy changes in the country since Franklin D. Roosevelt’s New Deal: a mammoth program to improve roads and bridges; a healthcare system that covers more sick people at less cost; limitations on fossil fuels and greenhouse gases that contribute to global warming; big investments in energy efficiency; middle-class tax cuts along with a tax hike on wealthy Americans.

That doesn’t sound like the agenda for a pragmatic and non-ideological administration. That’s what you would expect from a bunch of statist ideologues who have been waiting years or decades for an election and a crisis that would allow them to fasten on American society their own plan for how energy, transportation, health care, education, and the economy should work. That’s not centrist, it’s a collectivist vision hammered out by Ivy Leaguers and activists over the past couple of decades. In its more idealistic formulation, it’s based on the premise that smart people know what the people need better than the people themselves do, and that command and control work better than markets and individual choice. In its more practical application, it’s interest-group rent-seeking dressed in the trappings of public interest.

The proof will be in the pudding, of course. It’s the policies that matter, not the people. But these are people who weren’t selected for the misty dream of listening “not to your doubts or your fears but to your greatest hopes and highest aspirations” but rather for their determination to ensure that “generations from now, we will be able to look back and tell our children that this was the moment when we began to provide care for the sick and good jobs to the jobless; this was the moment when the rise of the oceans began to slow and our planet began to heal; this was the moment … when we came together to remake this great nation.” And for their commitment to use “this painful crisis [as] an opportunity to transform our economy.”

And for the rest of us, this is a time to remember that limited constitutional government and free markets sustain life, liberty, and the pursuit of happiness better than collectivist agendas carried out by powerful states.

Are You High Enough on Barack Obama’s List of Priorities?

Today’s The USA Today tells the story of “Phyllis Smith, a 60-year-old uninsured seamstress in Yantis, Texas, [who] goes without medications for high blood pressure and diabetes because she can’t afford a visit to her doctor to get her prescriptions refilled.”  The article quotes Smith:

With the condition this world is in right now, [Barack Obama] has his hands full…. Whether I get my high-blood-pressure medicine is not going to be high on his priority list.

Sort of argues against giving some distant ruler that much control over your life, doesn’t it?

And who knows?  Were those distant rulers not doing so much to make health insurance more expensive, perhaps Smith wouldn’t be uninsured.

Were they not doing so much to make routine care so expensive, perhaps Smith could afford that doctor’s visit, or have a nurse practitioner adjust her prescription.

Were they not doing so much to make prescription drugs more expensive, perhaps Smith could better afford her medications too.

Students! Apply Now!

The Second Annual International Students For Liberty Conference will be held at George Washington University (Washington, D.C.), from February 20-22, 2009. The conference has already received 100 applications from students in 13 countries, and will be accepting between 150-200 students. Bringing students together to hear about issues affecting liberty and discuss how to promote liberty on campus, this conference is sure to be one of the premiere events of the year for students dedicated to liberty.

At the inaugural, 2008 Students for Liberty Conference, three Cato people spoke: myself, Tom Palmer, and Randy Barnett. The speakers list for this year is still being compiled, but the Keynote Speaker will be Yon Goicoechea, recipient of the 2008 Milton Friedman Prize for Advancing Liberty for his work as a Venezuelan law student, leading the student movement for democracy and human rights in his country.

More information on the conference and online applications are available here.

A Cause to Be Proud Of

In the December edition of CatoAudio, I talk about some great moments in the history of liberty and libertarianism, from the ancient Hebrews to the three remarkable women of 1943 and the people fighting for freedom right now against tremendous odds. And I reply to the New York Times’s criticisms of libertarians who “claim to love freedom [but] have so often had a soft spot for those who would deny it to others.”

If you’re a CatoAudio subscriber, don’t be confused by the title “David Boaz on the coming century of liberty,” which was actually the title of an earlier speech (video or transcript). This one might better be titled “Great Moments in the History of Liberty” or “A Cause to Be Proud Of.”

And if you’re not a CatoAudio subscriber, then you’re missing out! Go here to subscribe. You can either receive a monthly CD in the mail or sign up for an MP3 subscription.

Blagojevich Rex

Illinois Gov. Rod Blagojevich (D) is innocent until proven guilty.

That said, as I blogged in October, this is a man who thinks he has the power to write the laws:

Gov. Rod Blagojevich’s agenda was dealt a major blow Friday after a state appellate court ruled he doesn’t have the power to expand state-subsidized health care without lawmakers’ approval…

Last year, Blagojevich sought to expand health-care coverage through an “emergency rule” allowing families with higher incomes—up to $83,000 a year for a family of four—to sign up. The move was quickly shot down by a legislative rules-making panel and blocked by Secretary of State Jesse White, but Blagojevich signed up people anyway…

“This is a clear and predictable message to the governor that no matter how laudable the goal is, he is not a one-man legislature and he has to work in conjunction with the General Assembly to pass this kind of program,” said state Rep. John Fritchey (D-Chicago).

So it hardly stretches credulity to believe that a man who fancies himself a monarch might also be guilty of lesser acts of corruption like using his office to enrich himself, which is pretty much what all politicians do.