TGIF: Beware the Regulatory Storm over FTX

The bankruptcy of the cryptocurrency exchange FTX and the alleged fraud by co-founder Sam Bankman-Fried, which has cost customers millions, is tailor-made for anyone who already wants the power of government to expand, especially in the area of financial privacy. For that reason I think it would be useful to take a 30,000-foot view of the matter. I offer these considerations as someone with no more than a layman's knowledge of the cryptocurrency phenomenon. (I found this Reason video helpful.)

First, fraud is illegal. If a firm accepts money from clients and uses it in violation of the contractual terms, that is already against the law and the victims have legal recourse. So right off the bat we should be highly doubtful about calls for new laws and regulations or expanded regulatory oversight.

Second, regulation can create a moral hazard. That's what happens when a sense of security provided by insurance or government regulation unintendedly encourages the very bad thing that one sought to avoid. Think of the massive stock fraud perpetrated by Bernie Madoff. Madoff was a well-connected investment insider who defrauded highly sophisticated individuals and charities. He didn't prey on naive widows. Madoff had even worked with the Securities and Exchange Commission (SEC). Isn't it plausible that the existence of the regulatory regime worked to Madoff's advantage? Imagine if no such regime had existed and investors had not been led to rely on an SEC "watchdog," with all the classic bureaucratic deficiencies, to protect them. Would they have been such easy marks? I think not.

Fraud is always possible no matter the regulatory environment. Thus a false sense of security is worse than none at all.

Critics of markets denigrate the buyer beware principle, but when compared to the alternative -- trust state bureaucrats -- it looks pretty good. To the extent that regulators weaken buyer beware, they do a disservice to the public while posing as benefactors. Buyer beware is necessary in any legal environment. If you were you're looking for a new doctor, would you be content simply to throw a dart at a list of government-licensed physicians? Or would you ask around?

Third, the alleged criminality of FTX should not impugn cryptocurrency per se any more than Maddoff's criminality impugned the stock market per se. If, as appears to be the case, a bad actor harmed a lot of people, he should have to compensate his victims. (Of course, that may not come close to making them whole.) But Bankman-Fried's wrongdoing must not be used to demonize cryptocurrency as inherently suspect and illegitimate or to drive it out of existence. No reasonable person concluded that we should not have a stock market because Madoff used it to fleece lots of people.

Fourth, some powerful people are out to get cryptocurrency precisely because it can help regular people maintain some privacy. Those with a fetish for government power have pushed and often attained measures designed to abolish financial privacy. For example, through the government's "Know Your Customer" rules, banks are obliged to inform regulators about their depositors' behavior even if no evidence of criminality exists. Regulation of the government-cartelized banking industry is so extensive that bureaucrats can make virtually any demand and the unwitting depositors whose privacy is compromised have little or no recourse. In a competitive banking industry with market-based money, banks would perhaps offer different assurances about privacy and consumers would freely decide what level they valued at what price. That's how it should be.

If people believe that financial privacy matters only to those who have harmful activity to hide, they need to get over it. Financial privacy and privacy in general are simply implications of self-ownership and should matter to everyone. It is obviously important in authoritarian and totalitarian countries, where governments freely confiscate people's wealth, but it's also important here. We can't know exactly what the future holds. Remember what happened to protesting truckers' bank accounts in Canada? Let's also not forget PayPal's threat, since rescinded, to fine customers for spreading alleged misinformation. And the war on drug sellers and users can't be a good reason for denying financial privacy because the so-called drug war should be abolished.

No one who cares about individual freedom should stand by and let the FTX scandal become a pretext for expanded government power and the destruction or nationalization of cryptocurrency.

TGIF: Midterm Blues

As midterm elections go, for champions of individual liberty this one could have been worse. I see two bright spots. The likely slim majority of Republicans in the House could -- maybe -- produce a measure of gridlock on domestic spending and regulation, and the blame for the Republicans' substandard midterm performance might fall entirely on Donald Trump, driving him from the stage. When you consider all the possible outcomes from Tuesday, that's not bad.

In most midterm years the only outcome worth hoping for is gridlock. Gridlock, however, wouldn't be the best outcome under all conceivable circumstances. Libertarians want Congress to get many things undone, especially but not limited to out-of-control military and so-called entitlement spending. The latter, which is on autopilot, finances programs that are facing insolvency. When that happens, today's spending, taxing borrowing, and money creation will look trivial.

But hardly anyone in power even talks about these and similar problems, so gridlock for the next two years is hardly likely to stop anything good from happening. In other words, gridlock was worth rooting for. It won't be worse than continued Democratic domination.

So regardless of what happens in the Senate, if the House goes Republican, even by the small margin that appears likely, we might see it block the most egregious domestic spending and regulatory measures proposed by Joe Biden and the congressional Democrats. I'd keep an eye on any more energy bills intended to interfere with the use of fossil fuels. Not that Republicans are reliable when it comes to opposing domestic spending -- far from it -- but we can hope. On the other hand, don't look for a freeze, much less a reduction in military and related spending. Republicans have not lost their commitment to the warfare state. 

As noted, the other good news from Tuesday was the poor showing for Trump, some of whose favorite candidates lost. Not all of those he endorsed bit the dust, but some key ones did, such as in Pennsylvania and New Hampshire. He may yet be disappointed by still-undecided races in Arizona, Georgia, Colorado, and elsewhere.

I'm hoping that Republicans will blame Trump for their party's poor showing in the midterms. The out-party is supposed to make big gains in Congress, in governor's mansions, and in state houses, but the Republicans did not do it. This happened in a year when the voters' top concerns were inflation and crime, and with an unpopular Democrat in the White House. Who or what else could be responsible for the lackluster midterm performance if not Trump?

So if Tuesday's results play a role in convincing Trump to stay out of the 2024 presidential election, we can breathe a sign of relief. Liberty would be better off without his toxic presence. (This is not to say that Ron DeSantis, who would be the chief beneficiary, offers any hope.)

With another election behind us, it's worth remembering what a fraud electoral politics is. Campaigns are little more than performance art -- bad performance art. The skill that ignorant voters tend to reward is a candidate's mastery at delivering a particular tribe's or coalition's talking points. Much of what elected officials do is interfere with our peaceful productive endeavors, but how many voters know anything about economics? Without that knowledge, all that's left are cosmetics and rhetoric that reassures.

The candidates typically don't know anything either, but they and their handlers do know that the voters are ignorant and thus are suckers for comforting soundbites. It's just a matter of which candidate gets more of his or her tribe to the polls.

If you can see in this any resemblance to selecting office holders according to their actual knowledge, judgment, competence, and integrity, let me know.

I'm not implying that politics could be better than this. The problems are inherent because government is a top-down way of attempting to organize society that cannot help but violate individual liberty. What I'm saying is that at best politics is show-biz by other means. 

So as usual, the election gave us both good news and bad news. The good news is that the losers lost. The bad news is that the winners won. 

TGIF: Election Day 2022

Another election day is upon us. We're told that we have a duty to vote because so many Americans gave their lives for that right. But perhaps it ought to be spelled R-I-T-E, as in a religious ritual.

Is it a duty or a right? Let's make up our minds. In 21 countries voting is mandatory -- although the law is not always enforced -- but that absurd idea has never had traction here. There is something weird about an alleged right that one is compelled to exercise. It certainly would be unique.

And did Americans really fight wars for the vote? Many who were killed in wars that the government tricked them into fighting might have thought they were risking their lives for freedom, but the freedom to vote probably didn't rank high on the list. Americans certainly died in the domestic struggle for full citizenship -- civil rights-- which includes the vote, and I don't mean to disparage that struggle.

I'm saying that the freedom to govern one's own life is more important than the vote, and deep down people know it. In our private lives individual action really counts: we tend to reap the lion's share of the benefits and pay the price of our actions. When I go to the supermarket to buy eggs, I am confident that I'll bring home eggs. Virtually all the costs, both in time and money,  and the benefits are mine; thinking about them is how I decide if going to the supermarket is worthwhile in the first place.

Voting is different. Individual action is almost always indecisive -- each person has only one vote, and the costs and benefits of each person's decision are widely and thinly dispersed throughout society. That disconnect breeds irresponsibility.

Imagine if we shopped for groceries the way we pick rulers. On Shopping Day you would walk into the supermarket and see before you two (maybe three or four) sealed pre-filled shopping carts. Each cart has a different selection of products. Your task is to vote for a cart from among the candidates. That may not be easy. Undoubtedly, you would like some of each cart's contents and dislike others. You would have to decide which one has more of what you want and less of what you don't want. And no, you would not be to able exchange items with other people.

So you would mark your ballot and then return home to watch the election returns. The cart that you get to bring home is the one that wins 50 percent plus 1 of the votes or perhaps a plurality. Of course, it may not be the one you voted for. Oh well. (To make this even more like politics, the cart you bring home isn't exactly like the one you saw in the supermarket. Campaign promises are notoriously ephemeral.)

I submit that that would be a stupid way to shop for groceries. But that's the system we use to pick the people who are empowered to meddle in our lives, embroil us in war, and do other foolish things that no one has any business doing. I acknowledge that voting is preferable to violence for selecting rulers, but when Churchill said democracy beat any alternative, he overlooked a contender: consistent liberalism (libertarianism), which does not allow majorities to negate individual rights.

Mathematically, one vote is rarely decisive and that's only in the smallest jurisdictions. As the late public-choice economist Gordon Tullock pointed out (watch the video "Voting Schmoting"): "It’s more likely that you’ll get killed driving to the polling booth than it is that your vote will change the outcome of the election."

No election in my adult lifetime would have turned out differently had I done something other than I did on election day. Not one. While the smaller the vote pool, the greater the chance of a tie, greater is not the same as great. In most places that chance is insignificant. People still talk about how close the 2000 Bush-Gore vote for president was in Florida. But the margin there was 537 out of nearly six million votes. As far as I've been able to determine, no individual Floridian cast or declined to cast 537 votes that day.

So when the good-government types tell you to get to the polls because "every vote counts," you know not true. It is certainly true that the winner by definition must have more votes than the loser. (Presidential elections are more complicated, of course.) But each person has only one vote, and it will make no difference. The only action you can control will not decide the outcome.

Someone might object that although your chance of casting the decisive vote is typically only the tiniest bit above zero, you won't know for certain how things will turn out until the votes are counted -- so you'd better vote. But if that were the right way to look at it, playing the lottery would be a good financial strategy because your chance of winning, no matter how small, is greater than zero. But it's not a good strategy. Except in truly desperate circumstances, we don't usually undertake a course of action unless we see a reasonable chance of success. That's how we avoid wasting scarce time, energy, and resources. Instead of voting, perhaps your time would be better spent doing something that has a reasonable chance of making a difference in some way that matters to you. Every action -- including voting -- has opportunity costs.

Tullock wasn't telling people to stay home on election day. He pointed out that many people vote because they like to vote, and he meant no criticism of them. Voters can have many reasons for liking that activity, such as feeling part of a like-minded group of people. Tullock simply thought that aiming to determine the outcome of an election is a bad reason to vote.

People can also have good reasons to dislike voting. They may not want to participate in a civic religious-style rite, which apologists for the government power will invoke in order to blame the voters and excuse the politicians and bureaucrats for bureaucratic incompetence and misconduct. If "we are the government," as we are often told, then the fault must lie in ourselves. But are we the government? Or is popular sovereignty the secular equivalent of the divine right of kings -- a fiction to rationalize an elite's power over us? (See the section titled "The Fiction of Representative Government" in my article "The Misrepresentation of Health Care Reform.")

One last thing: we are also told that if we don't vote we have no grounds to complain. That fallacy was put to rest in 1851 when the classical liberal Herbert Spencer pointed out that, apparently, voters have no grounds to complain either because those who voted for the winner got what they wanted and those who voted for the loser accepted the rules of the game. So everyone must shut up and obey. How convenient.

TGIF: Free Markets and Greed

"Greed, for lack of a better word, is good."

Ever since corporate raider Gordon Gekko, the lead character in Oliver Stone's Wall Street (1987), made that declaration, left-wing opponents of the market economy have regarded that one-liner as the only rebuttal required to silence their libertarian adversaries. (Right-wingers like the national conservatives probably find Gekko's line useful too.)

But Gekko's scriptwriters, Stone and Stanley Weiser, neglected to have their creature define the word. How interesting, then, that Gekko says, "for lack of a better word." Is there no better word or phrase than greed for what he might have had in mind? "The peaceful pursuit of one's interest" or "the pursuit of happiness" works for me.

The lack of a definition, of course, has never stopped anyone from quoting Gekko. It's as though a real person had finally blown the whistle on the market economy. It's about greed, and we all know that greed is the worst thing! What more do we need to know?

Bear in mind that the economy that Gekko operated in was not free, especially in banking and corporate finance. The politicians' and bureaucrats' hands were and still are all over it.

The video clip of Gekko praising the morality and efficacy of greed is still a staple of the left. So advocates of the market ought to be prepared for the charge. Milton Friedman can help.

Friedman, the late Nobel-Prize-winning economist, market advocate, and classical liberal was second to none when it came to handling questions from critics, and fortunately we can watch him in action as he answers the charge that greed is a moral stain on the marketplace. (YouTube has many videos showing Friedman answering market critics. Each is a superb lesson in how to respond with patience, civility, and clarity. Everyone would benefit from studying those videos.)

In 1979, eight years before Wall Street, Friedman appeared on Phil Donahue's popular television program. In this short segment of the interview, Donahue asked Friedman, "When you see the greed and the concentration of power, did you ever have a moment of doubt about capitalism and whether greed's a good idea to run on?" (Like greed, the ink-blot word capitalism means different things to different people, which it makes it a bad name for a social system. Hence it is often modified with such conflicting adjectives as free-market, crony, laissez-faire, political, and state. That's only one reason I have for rejecting the word.)

Friedman replied:

Well, first of all, tell me, is there some society you know that doesn't run on greed? Do you think Russia doesn't run on greed? Do you think China doesn't run on greed?

What is greed? Of course, none of us are greedy. It's only the other fellow who's greedy.

The world runs on individuals pursuing their separate interests. The great achievements of civilization have not come from government bureaus. Einstein didn't construct his theory under order from a bureaucrat. Henry Ford didn't revolutionize the automobile industry that way. In the only cases in which the masses have escaped from the kind of grinding poverty you're talking about, the only cases in recorded history are where they have had capitalism and largely free trade. If you want to know where the masses are worst off, it's exactly in the kinds of societies that depart from that. So that the record of history is absolutely crystal clear: that there is no alternative way, so far discovered, of improving the lot of ordinary people that can hold a candle to the productive activities that are unleashed by a free-enterprise system.

Donahue isn't finished, however. "But it seems to reward not virtue as much as the ability to manipulate the system."

Then Friedman:

And what does reward virtue? You think the communist commissar rewards virtue? You think a Hitler rewards virtue? You think -- excuse me, if you'll pardon me -- you think American presidents reward virtue? Do they choose their appointees on the basis of the virtue of the people appointed or on the basis of their political clout?

Is it really true that political self-interest is nobler somehow than economic self-interest? You know, I think you're taking a lot of things for granted. Just tell me where in the world you find these angels who are going to organize society for us. I don't even trust you to do that. [Smiling.]

Without my intending any criticism, Friedman might have asked Donahue what system he thinks some business people try to manipulate in today's mixed economy. Isn't it the interventionist political system that free-market advocates object to? Friedman also might have asked what's unvirtuous about a system that leaves individuals free to peacefully pursue their happiness through production and trade that necessarily makes many other individuals better off too. State-run or state-guided alternatives are all zero-sum, if not negative-sum, systems. One person's gain is another's loss. Only the market economy is positive-sum -- win-win. John Stossel likes to underscore that buyers and sellers typically thank each other when they complete their transactions. That should tell the Phil Donahues of the world something.

By the way, if you want an actual good movie on the economics of corporate takeovers, check out Other People's Money (1991), based on the play by Jerry Sterner, screenplay by Alvin Sargent, directed by Norman Jewison, and starring Danny DeVito and Gregory Peck.

TGIF: Are Bosses like Rulers?

What does the libertarian philosophy have to say about business management as an institution? Is it analogous to the state or something entirely different? Since we libertarians generally dislike seeing people being bossed around, whether by the state or anyone else, we may be tempted, as I've certainly been, to think that a free and just society would spontaneously dispense with the traditional employer-employee relationship. After all, libertarians have good reasons to at least be suspicious of all hierarchies and subordination, right?

So freedom would achieve its glorious pinnacle through flat bossless worker-owned co-ops, small partnerships, single-proprietorships, and peer-to-peer arrangements that lack even Uber's central ownership.

But maybe not.

The prediction that managerial specialists are due for extinction, however, looks more like wishful thinking in light of solid economic theory and empirical evidence, write economists Peter G. Klein and Nicolai J. Foss in their new book, Why Managers Matter: The Perils of the Bossless Economy. (This is not intended as a formal book review. Listen to Klein's conversation with Keith Knight of Don't Tread on Anyone.)

Klein and Foss's thesis grabbed my attention because, as I've experienced firsthand, drawing an analogy between the state and the traditional firm is seductive. On the other hand, I've known and respected Klein, an economist of the Austrian school who teaches at Baylor University's Hankamer School of Business, for many years. I take him seriously. (Foss teaches at the Copenhagen Business Schools in Denmark.)

The case against the traditional firm has this touch of plausibility: because government interventions in mixed economies can make quitting a job artificially costly, people might feel trapped in bad work situations. To the extent that the government deliberately or inadvertently creates obstacles to starting businesses or relocating (through licensing,  zoning, and more), or through a tax system that ties medical insurance to one's job -- to that extent, the government can in effect block employees from leaving bad workplaces or reduce their bargaining power. Such interventions provide a politically derived advantage to employers over actual and prospective employees that could not be achieved in the market.

But employers can create these impediments. Politicians and bureaucrats can and do.

For libertarians, the obvious remedy for politically bestowed advantages on employers is freedom, specifically, the freedom to compete, to start businesses, to move where the terms are better, etc. Ready options increase employee bargaining power. (Adam Smith in The Wealth of Nations decried the English laws that barred workers from moving to other areas in search of better pay.) Competition is the universal solvent.

The case against government policies that favor employers (again, not necessarily by design) should not facilely be extended to managerial hierarchy or traditional employment per se. Socialists haven't been the only ones to equate employment with servitude. Even the great classical liberal philosopher Herbert Spencer compared it to slavery. (Ironically, the pre-Civil War South's most eloquent defenders of chattel slavery denounced the wage slavery of the free labor market.) However, in a free market and even in a mixed economy like ours, the problem isn't distinct ownership and management. It's politicians and bureaucrats.

This is a big subject, and I'm certainly no expert, so I can only scratch the surface here. But Klein and Foss specialize in the economics of industrial organization and are an important reality check on those who think managerial hierarchy is morally objectionable and economically superfluous or worse.

Morally, of course, as long as neither side of a transaction, including the employer-employee relationship, uses force against the other, the transaction passes muster. It is irrelevant that one side can be said to have a "greater need" than the other for that relationship at that time. It is no employer's fault that people need to earn a living. One might even praise the employer for providing the means to do so. But let's remember that no firm is founded to provide jobs. Firms exist to make money for their owners by producing something of value for others. To do that they will typically hire people. Like other market transactions, all these exchanges produce mutual gains.

People start businesses with plans to produce something specific. Until they decide that a new objective is needed, the owner (or owners) will want to motivate and guide the staff to carry out the mission. Exactly who decides how the mission is carried out is a management's judgment call that depends on many factors. That's what management is about, and managing is real work, as the early classical liberals understood. The owner of an Indian restaurant is unlikely to hire chefs who insist on the autonomy to add other kinds of dishes to the menu. It would be wrong to think that those chefs are oppressed or stripped of their dignity.

Owners or their managerial agents, then, select the company's ends. However, the authors say, in the new information economy, it makes more sense than ever to leave the means to frontline employees. "We agree that the new environment suggests the need for a redefinition of the traditional managerial role." But they add: "Despite all the changes that have occurred, there is a strong need for someone to define the framework. In the knowledge economy, the main task for top management is to define and implement the rules of the game." Managers are also important for coordinating different divisions of a company that depend on each other.

Nuance, then, is the order of the day. Klein and Foss clearly are not dogmatically pro-hierarchy: "Indeed, some companies have excessive corporate fat: layers could often be cut, and empowering employees might increase productivity."

But the authors note that although the new technologies have revolutionized business, "the laws of economics are still the laws of economics, human nature hasn't changed, and the basic problem of business -- how to assemble, organize, and motivate people and resources to produce the goods and services consumers want  -- is the same as it ever was."

Any firm or noncommercial organization, for that matter, requires a focus on both the forest and the trees, the long and short term. Why would we be surprised that different people have different skills and different preferences in this regard? Skills, of course, are not evenly distributed throughout a population. A division of labor, knowledge, and inclinations is to be expected. Many will want to concentrate on a specific job, without having to think about management, long-term planning, and such. Lots of people dislike sitting through meetings.

Moreover, people differ in their preferences for risk-taking. Some prefer a regular paycheck in return for less overall responsibility.

The upshot is that human diversity makes noncoercive hierarchies perfectly understandable, inevitable, and beneficent as long as the market is free. That in no way means that bosses can't be stupid, obnoxious, or abusive. Of course they can and are. But if they have to compete without government privilege, abuse and stupidity won't survive because profits will go to the better-run firms, which will attract the best employees. 

In interviews (as in his and Foss's book), Klein emphasizes that one size surely does not fit all companies. As a Hayekian, he understands that nonmanagement workers possess local and tacit knowledge that managers don't -- and that good managers will want their employees to capitalize on that knowledge and reward them for doing so. "[T]here are many benefits to decentralization, as well as costs, and these vary widely with context and circumstance," Klein and Foss write.

Klein and Foss intend their book to correct the impression given by many current writers on management philosophy that hypes the spread of nonhierarchical companies and predicts a future marked by this new way of doing business. It's not true, Klein and Foss respond: "... echoing Mark Twain ... the death of hierarchy has been greatly exaggerated and ... its bad reputation is largely undeserved."

Their point is not simply that some degree hierarchy is more efficient than none at all, but that bosslessness poses perils to businesses, such as discoordination and -- perhaps counterintuitively -- lack of flexibility.

As you can tell, this is a rich thesis. I'll close with a couple more quotes:

Writers [who favor bossless firms] ... are fiercely critical of traditional hierarchy, but we think they exaggerate its problems and neglect many benefits.... The near-bossless companies -- and there aren't many of them -- with their self-managing teams, empowered knowledge workers, and ultra-flat organizations are not generally or demonstrably better than traditionally organized ones. Bosses matter not just as figureheads but as designers, organizers, encouragers, and enforcers....

[I]f you look more closely at ... ostensibly bossless companies, you see that they do have formal [or informal] bosses.... Right away, this suggests that perhaps the whole bossless company narrative is a bit of a head-fake -- a way to draw attention to the charismatic, influential leaders who create and promote flat structures..... Contrary to popular opinion, the world is not becoming dominated by flatter, even bossless, network organizations.

The market is an efficient decentralized information-generating process. Through private property, voluntary exchange, free enterprise, and the price system, we learn things that we can't learn in other ways. This is as true for the best management methods as it is for the many other things we look to the market for. Government should never impede worker-owned enterprises, but it shouldn't help them either. Freedom is for all. 

Related reading: "Free Men for Better Job Performance" by C. L. Dickenson, published by the Institute for Humane Studies in 1966. It is posted here and here.

TGIF: Governments Create Problems; Markets Fix Them

My article "Complete Liberalism" prompted an unexpected challenge. An interlocutor, who says he owns a business and thus is not antibusiness, claimed that my article suggested that, unlike government regulators, businesses never get things wrong. Yet business failures outnumber successes 10,000 to one, this person said, for all kinds of reasons, both innocent and malign, including a desire to pull the wool over consumers' eyes for as long as possible.

The problem with the comment is that my article never claimed that business people always get it right or are always virtuous. I've pointed out repeatedly that the best economists -- especially the Austrian economists -- never ignore the inherent existence of error in describing how markets work. And libertarian writers have never suggested that business owners cannot have bad intentions, which are magnified by access to state power. Quite the contrary! What these thinkers have emphasized are the systematic incentives and disincentives produced by free competition that reward pro-consumer performance and penalize incompetence and malevolence. Think of all the libertarian criticism of the malignant relationship between business and government. Now think of Ayn Rand's businessmen-villains in Atlas Shrugged.

One need only read the accessible writings of Ludwig von Mises ("Profit and Loss," Bureaucracy), F. A. Hayek ("The Use of Knowledge in Society," "Competition as a Discovery Process"), or Israel Kirzner ("Economics and Error") to see that the plague of uncertainty, error, and incomplete and dispersed knowledge figures heavily in good economic analysis. The question they sought to answer is: how can people coordinate their productive social cooperation in the face of such ignorance? Individual freedom produces the only answer for a great society: prices.

In fact, if it weren't for imperfect knowledge, free markets would be unnecessary and profit and loss would disappear. Mises wrote:

If all people were to anticipate correctly the future state of the market, the entrepreneurs would neither earn any profits nor suffer any losses.... What makes profit emerge is the fact that the entrepreneur who judges the future prices of the products more correctly than other people do buys some or all of the factors of production at prices which, seen from the point of view of the future state of the market, are too low....

On the other hand, the entrepreneur who misjudges the future prices of the products allows for the factors of production prices which, seen from the point of view of the future state of the market, are too high. His total costs of production exceed the prices at which he can sell the product. This difference is entrepreneurial loss.

It's hard to believe that an economist who writes about entrepreneurs with correct or incorrect judgments about the future could have thought that business owners were infallible. Economic analysis, after all, is supposed to be about real human beings who, whether they are acting as producers or consumers, are fallible.

The free-market position is that free and competitive markets are not perfect but better than government bureaucracies at detecting and correcting errors about what consumers will want and what they will be willing to pay. That's what counts, isn't it? Since omniscience is not an option, we want the best method available. That's all we can hope for, and it turns out not to be too bad. We must always ask about any touted solution to a problem: compared to what? Thomas Sowell's Law -- "There are no solutions, There are only tradeoffs" -- is relevant here.

David D. Friedman is another important scholar who has shed light on the relative merits of bureaucracies and markets in his important article "Do We Need a Government?" (I recommend his video lecture.) Friedman addresses a different matter than the one I'm concerned with, namely, the collective-action problem, one manifestation of which is called "market failure." But much of what he writes applies. Here's the key, which is about systematic incentives:

In private markets, most of the time, an individual who makes a decision bears most, although not all, of the resulting costs, and receives most of the resulting benefits. In political markets that is rarely true. So we should expect that the market failure that results from A taking an action most of whose costs or benefits are born by B, C, and D should be the exception in the private market, the rule in the political market. It follows that shifting control over human activities from the private market to the political market is likely to increase the problems associated with market failure, not decrease them.

This shouldn't be controversial. We experience this as shoppers when we spend our own money on the very goods we then bring home and use, and as voters, where the disconnect among choices, costs, and benefits is stark. This has critical implications for both business owners and bureaucrats. A fundamental contribution of public-choice theory is that the normal principles of human action apply to government employees. Bureaucracies are filled with ambitious people too, so this is only fair. They don't become sainted creatures with perfect knowledge and perfect virtue merely because they step across the threshold and take government jobs. 

Incentives matter, as we all know first-hand. The same human being operating in two different institutional environments should be expected to behave differently. And indeed they do.

In a competitive -- that is, free -- market a business owner's mistake or bad conduct is someone else's chance to make a profit. Because entrepreneurs know this, they are on the lookout for errors. "Hence in a market society," Friedman writes, "there is an incentive for private parties to find ways around the inefficiencies due to market failure."

Nothing is more powerful than the profit motive, something that even opponents of the market readily concede.

The same incentive is not to be found in bureaucracies, which are not profit-and-loss organizations. Most important, bureaucrats don't have the price information that entrepreneurs have. Their revenue is obtained by force -- taxation -- and their "products" are not offered on markets where prospective buyers can pass them by for competing offerings. That's an entirely different ballgame from market activity.

Notice that bureaucratic failures are routinely portrayed as market failures (most people's economic ignorance leaves them gullible) and are used to justify even more government: larger budgets, bigger staff, and wider powers. If (alleged) market failures require more government, as some people believe, how can government failures require, not more markets, but more government?

We should want the incentives for spotting and fixing errors to be as undiluted as possible. The way to achieve that is to keep the government from interfering with people's peaceful activities.

TGIF: How the State Violated Free Speech during the Pandemic

Is anyone shocked by this observation?

Public statements, emails, and recent publicly released documents establish that the President of the United States and other senior officials in the Biden Administration violated the First Amendment by directing social-media companies to censor viewpoints that conflict with the government’s messaging on Covid-19....

This insidious censorship was the direct result of the federal government’s ongoing campaign to silence those who voice perspectives that deviate from those of the Biden Administration. Government officials’ public threats to punish social media companies that did not do their bidding demonstrate this linkage, as do emails from the Centers for Disease Control and Prevention (CDC) and the Department of Homeland Security (DHS) to social media companies that only recently were made public.

So states the New Civil Liberties Alliance (NCLA) in announcing its lawsuit against President Joe Biden, former chief medical adviser Anthony Fauci, and other government public-health officials,  departments, and spokesmen. The case now before a federal district court in Louisiana is called State of Missouri ex rel. Schmitt, et al. v. Joseph R. Biden, Jr., et al. No social-media company was named as a defendant. Rather, the suit is about the government's illegal and unconstitutional conduct. (See the complaint for the eye-opening details.) In fact, the complaint states: "Notably ... prior to Defendants’ campaign of threats and pressure, social-media platforms generally declined to engage in the acts of censorship alleged herein." 

The plaintiffs are the states of Missouri and Louisiana and several health care experts, including Dr. Jay Bhattacharya of Stanford University (among other prestigious affiliations) and Dr. Martin Kuldorff of Harvard University, two of the three authors of the Great Barrington Declaration, published in October 2020 and signed by thousands of medical professionals. The Declaration challenged the government-led strategy of shutting down American society through a variety of mandates as though everyone -- young and old, healthy and ill -- were equally vulnerable to the dangers of COVID-19. The government's data on who was suffering serious, possibly lethal illness and requiring hospitalization contradicted that baseless premise early in the pandemic.

The Declaration, which today has signatures from more than 62,000 scientists and health care professionals (and 932,000 signatures overall) called instead for "focused protection" of the elderly and those with already-compromised immune systems. Otherwise, Americans should be left free to live normal lives. The shutdown of society, this view holds, would inflict untold harm in regard to health (because of deferred medical examinations/treatments), psychological well-being, children's education, and lost income. All of this and more have now been documented. "Focused protection," it must be emphasized, was not a radical position in 2020. Rather, it had been the mainstream approach to pandemics for the previous 100 years.

Unfortunately, the authors, who also included Dr. Sunetra Gupta of Oxford University, were smeared by government officials and spokesmen as fringe characters who could be safely ignored. At the same time, the national government pressured social media to suppress challenges to its message and policies. In other words, the government did everything it could short of direct censorship to keep the American people from knowing that eminently qualified doctors and other scientists disagreed with the party line.

Under the U.S. Constitution and case law, the government is not only barred from directly interfering with speech on the basis of content, but it is also prohibited from inducing or coercing private entities, such as social networks, to do so. The Supreme Court has spoken on this.

The plaintiffs contend that this is precisely what the defendants did during the pandemic through "express and implied threats" against the social networks, including the threat of antitrust action and the threat to withdraw the protection provided by Section 230 of the Communications Decency Act, which immunizes the platforms from liability for what participants post. 

NCLA says:

Government-induced censorship is achieved through a wide variety of mechanisms, ranging from complete bans, temporary bans, “shadow bans” (where often neither the user nor his audience is notified of the suppression of speech), deboosting, de-platforming, de-monetizing, restricting access to content, requiring users to take down content, and imposing warning labels that require click-through to access content, among others. These methods also include temporary and permanent suspensions of disfavored speakers.

This sort of censorship, which strikes at the heart of what the First Amendment to the U.S. Constitution was designed to protect—free speech, especially political speech—constitutes unlawful government action. The federal government is deciding whose voices and ideas may be heard, and whose voices and ideas must be silenced. Moreover, this state action deprives Americans of their right to hear the views of those who are being silenced, a First Amendment corollary of the right to free speech.

The lawsuit seeks no monetary damages, but it asks the court to declare that the plaintiffs acted illegally. It also asks the court to

Preliminarily and permanently enjoin Defendants, their officers, officials, agents, servants, employees, attorneys, and all persons acting in concert or participation with them, from taking any steps to demand, urge, pressure, or otherwise induce any social-media platform to censor, suppress, de-platform, suspend, shadow-ban, de-boost, restrict access to content, or take any other adverse action against any speaker, content or viewpoint expressed on social media.

Going further, we must demand an end to the government-university-science complex, which puts a heavy political thumb on the scale of scientific debate without which the truth cannot be ascertained. As the complaint states, "Yesterday’s 'misinformation' often becomes today’s viable theory and tomorrow’s established fact.... This prediction has proven true, again and again, when it comes to suppressing 'misinformation' and 'disinformation' on social media." (The complaint notes other examples of similar reversals despite official government efforts, including the Hunter Biden laptop story and the Wuhan lab-leak theory of the coronavirus's origins. These once-belittled accounts either have been confirmed, as with the laptop story, or have achieved reasonable credibility if not confirmation, as with the lab-leak theory.)

Government officials must not be permitted to suppress, directly or indirectly, public-health and other sorts of claims they disagree with. Officials of course can say what they believe are the facts, but they must not attempt to smear, marginalize, and silence dissenters. The very act of financing scientific research is prejudicial because of the stamp of exclusive legitimacy it implies. As the pandemic illustrates, a truly free marketplace of ideas is literally a matter of life and death.

TGIF: The Scourge of Conscription

By now Randolph Bourne's observation that "war is the health of the state" ought to be such a cliche that it would hardly need to be said. And yet, it must be said -- often -- because many still haven't gotten the word.

If the state is the adversary of liberty, as it nearly always has been, then it follows that war is also the ill health of liberty. And when one thinks of war, one ought also to think of conscription because it's often somewhere close by. In a perverse way, Americans have been lucky. The divisive decade-long Vietnam war and access to the latest war-making technology have made the draft just a bad memory for Americans since 1973 and politically toxic. Repeated attempts to bring it back, even with "national service" packaging fortunately have failed.

Outrageously, however, American men 18-25 must register with the euphemistically named Selective Service System, as they've been required to do since 1979 when the Soviet Union invaded Afghanistan. Make no mistake about it. This is not a registration for a benign contest. As the Selective Service website states:

While there is currently no draft, registration with the Selective Service System is the most publicly visible program during peacetime that ensures operational readiness in a fair and equitable manner. If authorized by the President and Congress, our Agency would rapidly provide personnel to the Department of Defense while at the same time providing an Alternative Service Program for conscientious objectors.

How reassuring. The draft is always in the wings. And the penalty for the felony of not registering is a $250,000 fine and/or a five-year prison term.

The evil of slavery is almost universally appreciated, so why is the draft, which is slavery with an expiration date and high risk of death and injury, not universally condemned? Is it because in many places people believe that governments ultimately own their subjects and may dispose of them as they see fit?

The draft has been in the news lately because Russia, the invader, and Ukraine, the invaded, compel men into combat and other military "service." It is encouraging that neither Russians nor Ukrainians are fans of that policy. Russian men are protesting and some are getting out of the country. Ukraine has had to forbid men from leaving. Many people just don't relish war.

It should go without saying that if individuals have the right to life, liberty, and the pursuit of happiness, then individuals have the right to decide when they will take up arms, free of a despotic elite or majority. We may not always like the consequences of freedom, but that's how it is.

Until 1973 America had suffered the tyranny of conscription repeatedly, but not everyone accepted it. One of the most eloquent speeches ever delivered in the House of Representatives was aimed at conscription by Rep. Daniel Webster of Massachusetts (1782-1852) in 1814 after a bill to draft men for the lingering War of 1812 had been introduced. Despite Webster's efforts, the bill passed, but the war ended before it took effect. Originally from New Hampshire, Webster also was a U.S. senator and secretary of state. He was in the Federalist party until 1825. As a staunch nationalist, he opposed nullification by the states of national legislation, a position that will seem at odds with his objection to the conscription bill.

We must bear in mind that Webster's speech came when many people distrusted standing armies and believed that the national government constitutionally could call up the state militias only in specified emergencies, namely, to "repel invasion, suppress insurrection, or execute the laws.” In the first few decades of the republic, however, membership in the militias was mandatory. But unlike a regular army, the militia did not require full-time service for a period of years. For the rank and file, it was a sideline (like being in a fire brigade) that was part of their normal lives. All but one of America's earliest wars were fought with such conscripts.

Webster objected not to compulsory military service per se, but rather to a bill according to which the "services of the men to be raised ... are not limited to those cases in which alone this government is entitled to the aid of the militia of the States." In other words, he was making a federalist case against the claims of the national government. This is a far narrower objection than a libertarian might have hoped for, but Webster still had worthwhile things to say against the inherent features of conscription.

Webster thought the bill was an attempted end-run around the Constitution. He asked:

What is this, Sir, but raising a standing army out of the Militia by draft, and to be recruited by draft, in like manner, as often as occasions require?... That measures of this nature should be debated at all, in the councils of a free government, is a cause of dismay. The question is nothing less than whether the most essential rights of personal liberty shall be surrendered, and despotism embraced in its worst form. [Emphasis added.]

Later in the speech he said, "If the Secretary of War has proved the right of Congress to enact a law enforcing a draft of men out of the Militia into the Regular Army, he will at any time be able to prove quite as clearly that Congress has power to create a Dictator."

He saw the threat of despotism all through the bill:

Is this, sir, consistent with the character of a free government? Is this civil liberty? Is this the real character of our Constitution? No sir, indeed it is not. The Constitution is libelled, foully libelled. The people of this country have not established for themselves such a fabric of despotism. They have not purchased at a vast expense of their own treasure and their own blood a Magna Charta to be slaves.

Imagine such words being spoken in Congress today. He clearly spelled out the consequences, which should be familiar to all in our own time:

Where is it written in the Constitution, in what article or section is it contained, that you may take children from their parents, and parents from their children, and compel them to fight the battles of any war in which the folly or the wickedness of government may engage it? Under what concealment has this power lain hidden which now for the first time comes forth, with a tremendous and baleful aspect, to trample down and destroy the dearest rights of personal liberty?

Who will show me any Constitutional injunction which makes it the duty of the American people to surrender everything valuable in life, and even life itself, not when the safety of their country and its liberties may demand the sacrifice, but whenever the purposes of an ambitious and mischievous government may require it?

Then he addressed the stated concern of Secretary of War John Armstong, a champion of the bill:

But it is said that it might happen that an army would not be raised by voluntary enlistment, in which case the power to raise an army would be granted in vain, unless they might be raised by compulsion. If this reasoning could prove anything it would equally show that whenever the legitimate powers of the Constitution should be so badly administered as to cease to answer the great ends intended by them, such new powers may be assumed or usurped, as any existing administration may deem expedient.

Webster, here sounding like an old Antifederalist, seemed to be rejecting the Constitution's "necessary and proper" clause as a potential blank check. That doctrine attributed to Armstrong, he said, would result in a central government of unlimited self-defined powers, which he condemned as a violation of the framers' intent: "An attempt to maintain this doctrine upon the provisions of the Constitution is an exercise of perverse ingenuity to extract slavery from the substance of a free government."

Should the law pass, he said, it would fall to the states to protect their citizens from that arbitrary national encroachment. The central government would then require an army to enforce conscription, just as it believed it needed conscription to raise an army. Webster said:

It will be the solemn duty of the State Governments to protect their own authority over their own Militia, and to interpose between their citizens and arbitrary power. These are among the objects for which the State Governments exist, and their highest obligations bind them to the preservation of their own rights and the liberties of their people. [Emphasis added.]

How is that not nullification?

In his expectation that the states would protect their citizens from a national draft, Webster's speech reminds us of the Defend the Guard campaign now going on in state legislatures to end Washington's power to commit National Guard units to overseas combat without a declaration of war, as has happened throughout the 21st century. (Watch Scott Horton's speech in Minnesota on behalf of the Defend the Guard movement there.)

The more things change....

TGIF: Sam Harris on Saving Democracy from Voters

Neuroscientist/philosopher Sam Harris caused quite a stir recently by defending the social networks' conspiracy (his word) to suppress news coverage of Joe Biden's son Hunter's smoking-gun laptop shortly before Election Day 2020. Harris said the suppression was justified because Donald Trump was such a threat to America that he had to be defeated whatever the cost to the election's integrity.

In other words, according to Harris, such tampering is okay as long as he deems it necessary to save American democracy from the voters.

The social networks are privately owned, of course, but remember that Facebook chief Mark Zuckerberg has acknowledged that the FBI warned him, shortly before the New You Post broke the laptop story, that unspecified major Russian disinformation aimed at the election was about to surface. The authenticity of the laptop, with its damaging emails about Hunter Biden's lucrative business dealings with Ukrainian and Chinese entities while his father was the vice president, was known early on and has since been confirmed by others. Even the New York Times now concedes it. Allegations of Russian election tampering had as much merit in 2020 as they had in 2016, when Trump was portrayed by his critics as a Russian stooge.

But with or without prodding from the FBI, the social network operators, should not have suppressed the laptop story for a host of obvious reasons. These businesses acquired huge numbers of participants on the promise that they would be open forums. When they first began to interfere with that process, the networks let users down. To do this during a presidential election is a particularly egregious disservice. Why do people still depend on them for information? (No, this does not justify antitrust action.)

I leave it to others to debate whether Harris's assessment of Trump is accurate. I'm more interested in the principle Harris has set out.

Although I am as far from Trump fandom as anyone could be, the first question I would ask Harris is whether he considers himself the only person wise and trustworthy enough to decide if a candidate is sufficiently threatening to justify concerted suppression of unflattering information about the other candidate. If he says yes, then he's as self-centered as Trump. If he says no, he might do us the courtesy of spelling out how that decision would be made. Does he want a constitutional office created? How would the decider be chosen?

If he were to answer my questions, I would move on to this one: what makes him think that if his principle was adopted, he would like its future applications? Supreme Court justices have often disappointed the presidents who appointed them. For similar reasons, the decision makers anointed to carry out the Harris principle might somewhere along the way disappoint him. Harris must be a lousy chess player because he doesn't think even two moves ahead.

Still, Harris's remarks do raise an interesting dilemma. It's not a new conundrum: what if democracy looks to be on a suicide course? Does the "sacred" principle of majoritarianism, which libertarians as individualists abhor, extend to the principle itself? Or is it proper to cripple democracy to save it?

Small-d democrats might say, "Yes -- temporarily." But there's the rub. The future is uncertain. Temporary in intent is not necessarily temporary in fact. Governments taught us that long ago. We know that people don't like to give up power, as Lord Acton taught us. Power doesn't only tend to corrupt; it attracts the already corrupt. Wouldn't that suggest that democracy should never be suspended or tampered with in the present for fear that the winner of an election might suspend or tamper with it in the future? What say you, Sam Harris?

If this problem is addressed only after it arises, it's probably too late. The time to think about it is before a democracy with few real limits on power is launched. The War Games line, spoken by the computer after learning that nuclear war is futile, applies: "The only winning move is not to play."

It's not as if the original classical liberals and their libertarian descendants didn't warn us. Individualist political economists and social philosophers long ago pointed to the dangers of a democratic state with the power to meddle in all aspects of people's lives. For these thinkers, the whole point of laissez-faire in the age of democracy was to keep elected rulers, and thus the electorate itself, out of our private peaceful productive affairs so that the contest for political power would not become socially and economically disruptively cutthroat. When the government is just about omnipotent, everyone will want to get to their hands on it -- if only for defensive purposes.

Even if those pioneering political economists did not want to dispense with government entirely (a few did), they understood that society essentially runs itself without a heavy-handed state because people generally understand that their best interests are served through cooperation with others. Thomas Paine, for example, in Rights of Man wrote:

Great part of that order which reigns among mankind is not the effect of government. It has its origin in the principles of society and the natural constitution of man. It existed prior to government, and would exist if the formality of government was abolished. The mutual dependence and reciprocal interest which man has upon man, and all the parts of civilised community upon each other, create that great chain of connection which holds it together. The landholder, the farmer, the manufacturer, the merchant, the tradesman, and every occupation, prospers by the aid which each receives from the other, and from the whole. Common interest regulates their concerns, and forms their law; and the laws which common usage ordains, have a greater influence than the laws of government. In fine, society performs for itself almost everything which is ascribed to government.

Thus, at most, governments should be kept on a short leash, with their powers dispersed and their missions held to the barest minimum necessary to protect the peace, that is, individual rights. If we can eliminate the state altogether, even better!

What the good liberals didn't tell us -- because there's no magic formula -- is how to keep government to the bare minimum. Constitutions are no guarantee, are they? Today's libertarians are still working on cracking that nut. Most people are not going to read books on political philosophy or economics, even something as accessible as Frédéric Bastiat's The Law. So somehow we must strive to create a taboo against asking the government to do anything more than keep the peace in ways that respect everyone's rights. How do we do that?

Happy Constitution Day

                        The real scoop.

TGIF: Question Intuition!

In the 1960s a popular button that New Left activists wore implored everyone to "Question Authority!" It was good advice, even though many kinds of authority exist. Some authority is chosen (for example, one's doctor) and others are compulsory (the government). But in either case, questioning it is reasonable. The button did not implore anyone to reject authority, only to question it.

What about intuition? I have the impression that people think their own intuitions need not be questioned because they are reliable. But is that wise? I don't think so.

First let's acknowledge that much of what people take for an intuition is often a mere claim heard repeatedly through the mass media or social networks. Something that seems like an intuition may not be one at all.

But ignore that distinction for this discussion. Some factual claims just feel true to people who have not read much about the matter. For example, many people are likely to say that it is intuitively true that a growing human population must bring a progressive depletion of natural resources (and the products embodying them) and thus scarcer supplies, higher prices, more hardship for poorer people, greater economic inequality, and other bad things. They feel this must be the case. How could it not be true? Resources are finite and nonrenewable, so if more and more people demand them, harm must follow.

But is it really true? Or is this a case of knowing something that isn't so?

It will shock many people to learn that we know empirically and theoretically that it is not true. If that sense of doom is an intuition, then intuition can be and often is wrong. Malthus got it exactly upside down. As Marian Tupy and Dale Pooley, building on the work of the late great Julian Simon, demonstrate, world population has grown dramatically -- one billion in 1800, eight billion today -- along with a dramatic fall in absolute poverty and a dramatic increase in the production of and access to food and all the other things we need and want.

More people are living longer and materially better lives than ever before. This simply cannot be denied. Tupy and Pooley emphasize a largely unknown fact among laymen: today it takes people on average everywhere less labor time to earn the money to buy all sorts of goods and the underlying resources than it took in the past, even the fairly recent past. In the time the average manufacturing worker labored to earn the money to buy one egg in 1919, he could buy 36 eggs in 2019. The time price of an egg thus had dropped to 1/36 of the earlier time price, roughly a 97 percent drop in the real price. And so on across the board.

Today, Tupy and Pooley say, average time prices have fallen to 2 percent of their 1850 level. (Quality improvements, which are hard to quantify, make this fall an underestimate.) Let that sink in, especially how that disproportionately benefits the poorest people. They have more time to buy more things or to enjoy leisure. That's new wealth. Industrious people at all levels have become smarter and more productive because of modern technology.

Tupy and Pooley call their new book Superabundance because, contra Malthus, the increase in resources has outpaced population growth. That's counterintuitive. We forget that while people are consumers, most are also net producers. (See the charts here.)

Exactly what accounts for that great progress? Two things, the authors say. The first is human intelligence, or as Simon called it, the "ultimate resource." This is an apt term. Contrary to intuition, there are no natural resources. Zilch. In the pilot of the 1960s TV show The Beverly Hillbillies, the backwoods farmer and hunter Jed Clampett discovers oil on his land. Does he cheer? No, he is unhappy. He sees it as a curse. When a city man offers to remove the oil, Jed says he can't afford to pay for the removal. The city man laughs and explains that Jed will be paid (a lot), not charged, for the removal. (Jed was really behind the times.) Obviously, that was not always the case.

What happened? Knowledge happened. Chemically, the crude was the same stuff as before. But in the 19th century, a chemist (in Canada, I believe) discovered that kerosene, which could fuel lamps, could be distilled from that oil. Then others discovered that oil could be pumped and refined economically, that is, cheaply enough to make a mass market. (John D. Rockefeller had a lot to do with this.) This solved a problem: the common fuel for lamps, whale oil, had been getting expensive because the whales were being killed off. Eventually, it was discovered that gasoline, which could fuel machines, also could be refined from oil, and we were off to the races.

What turned useless black gunk into useful "black gold" was human intelligence. This is true for all so-called natural resources. Nature provides stuff, but it neglected to furnish a user manual. People had to figure it out for themselves. And we all benefited immeasurably.

As important as human intelligence is to the creation of resources, something more is needed: freedom (or at least a good measure of it). If people are not substantially free to act and interact, peacefully, of course -- if society instead is planned from the top -- little if any innovation will take place to improve the lives of entire populations. Freedom and innovation go together.

A further implication, as Simon heroically taught, is that population growth (along with immigration, by the way) is good. More people means more ideas that can combine with other ideas to produce even better ideas. (Free speech is obviously crucial.)

The great economist Ludwig von Mises understood all of this. My favorite line in his magnum opus, Human Action, reads: "The fact that my fellow man wants to acquire shoes as I do, does not make it harder for me to get shoes, but easier." As the number of our fellow human beings increases, getting shoes and everything else becomes even easier -- if the government can be kept at bay.

Everything today is more plentiful and cheaper than in previous eras -- well, almost everything. The only thing that has gotten more expensive is labor, which indicates that people have become more scarce relative to consumer demand and resources. If a demographic problem for economic growth is looming, it's de-population in the most productive parts of the world. What's your intuition have to say about that?

Indisputably, then, free human beings have made the earth more, not less, hospitable. (For details on all these matters, see the works of Simon and Tupy and Pooley, as well as others, including Matt Ridley, Bjorn Lomborg, Alex Epstein, Patrick Moore, and Michael Schellenberger.)

Energy News Flash!

Higher-income people can cope more easily with government-created soaring energy prices than lower-income people can. The state is no friend of those who struggle to pay their bills.

TGIF: Reject Both Identity and Egalitarian Politics

The push-back against identity politics by disillusioned leftists is welcome, but the striving to replace identity with economic equality as the guiding political principle? Not so much.

I won't spend time on the problems with identity politics, a zero-sum game if ever there was one. The virtue of universalism extolled by classical liberalism seems indisputable. Why wouldn't everyone begin with the same entitlement to life, liberty, and the pursuit of happiness free of government impediment?

As a general matter, past crimes committed by some long-dead people against other long-dead other people cannot be rectified without creating new crimes and instigating an unending chain of grievances. That's no recipe for the liberty, cooperation, and peace that our individual and social welfare require. Identity politics is founded on collectivism, according to which people are judged by their membership, typically involuntary, in a racial or ethnic group. The obsession with identity has now gone from the ridiculous (skin color) to the absurd ("gender"), but that's a topic for another day -- perhaps. It's a minefield.

So let's turn to the proposed replacement: economic equality, sometimes called class-based politics. A contingent of people, including but not limited to some orthodox Marxists, have pointed out that identity politics has tragically taken our eyes off the ball. Instead of focusing on something that can unify all "oppressed" people -- the wealth and income gaps -- we have been misdirected toward something that needlessly divides them and reduces or obliterates their ability to resist and to make things better. One proposal is to replace race-based government programs like affirmative action with class-based versions that give preferences to people with less-affluent upbringings. (One finds this view expressed in a heterodox publication I like quite a bit, Spiked Online.)

Why is that not a promising alternative? Because it is riddled with fallacies. I'm not saying we have no good way of talking about class; many classical liberals have done so. Karl Marx himself, who is dubiously credited with creating class analysis, acknowledged his debt to the early French laissez-faire liberals for their pioneering work in the field -- before he proceeded to mangle it because of his fallacious economics. According to the classical liberal view, the state creates class antagonism by appropriating wealth from the industrious people (the tax-producers, who include, along with nonmanagement workers, the creators of businesses and employers) and giving it to their cronies (the tax-consumers). This sets in motion a social conflict with wide ramifications.

Needless to say, most contemporary class analysts are not of the classical liberal variety even those who are increasingly suspicious of state power. They still suffer the fallacy that economic inequality is an inherent bug in market-oriented societies that requires force-wielding enlightened rulers (Bernie Sanders or Alexandria Ocasio-Cortez perhaps) to intervene.

I think that the pursuit of economic equality is doomed to fail because it clashes with immutable reality. I emphasize, though I shouldn't have to, that I am not talking about legal equality, equality of liberty, or what Roderick Long calls "equality of authority." (Equality of opportunity is a slippery term if it means more than freedom from government impediment.) I mean only income or wealth equality.

Why would the quest for that kind of equality clash with reality? It must do so because individuals will never be the same in many key respects. They differ vastly in talent, drive, energy, ambition, entrepreneurial intuition, and more. These things are clearly relevant to their degree of ability to create wealth and earn income through voluntary exchange in the marketplace. We all know that not everyone is equally endowed with the ability to produce value for consumers, say, by organizing a business. That would be the case even if everyone had a good upbringing and no one was forced to attend a decrepit government school. That's just the way it is.

A serious attempt to create economic equality, or even something close, would create the nightmare world envisioned in Kurt Vonnegut's short story "Harrison Bergeron." The philosopher Robert Nozick's Anarchy, State, and Utopia set out a scenario that is only slightly less dystopian. He pointed out that even if everyone started the day with the same amount of money, they wouldn't finish the day that way because some would have been better at pleasing consumers than others. So what now? If the goal remained perfect equality, government officials would have to start each day by redistributing the money evenly again. What would that do to people's incentive to produce? The policy might lead to equality, but it would be at an abysmally low level. Only the envious would be satisfied, but envy is no basis for a prosperous or pleasant society. So which do we prefer: equality of poverty or inequality in which the lowest living standard is higher than it would be in the egalitarian dystopia?

The connection between inequality and actual living standards is illusory. Imagine a rising elevator: the ceiling goes up, but so does the floor. Now imagine a rising accordion-like elevator that rises: even as the distance between the ceiling and floor increases, the entire unit goes up. This demonstrates the distraction of focusing on inequality.

The vast difference in incomes and wealth among people in the United States, which defines classes, obscures the more-important shrinking of the gap in consumption. For decades now, lower-income people have had progressively easier access to life-improving conveniences and necessities that the upper class once had only at enormous expense -- if at all. (Not long ago, no rich person walked around with a powerful computer/communications device in his pocket.) One-time luxuries have become commonplace necessities and affordable for virtually everyone even as they have greatly improved in quality.

In fact, if you measure this increasing access to products, not according to money prices (which are confounded by inflation and other things), but according to how long the average employee must work to earn the necessary money (time price), the picture that emerges is astounding. This is a good measure because we ultimately pay for things with our effort.

Average working people today toil a fraction of the time their parents and grandparents did to earn what it takes to buy not just the same products, but much better ones. In other words, we all get more and more utility for free. Think about it: if today you can buy something with only 15 minutes of work instead of the hour you had to spend before, you obtain three-quarters of the product's utility gratis. You have money left over for other things that you previously could not afford.

How does that happen? It happens through dramatic increases in productivity, which are made possible through investment (of savings and profits) in innovative technologies, which in turn are made possible by human ingenuity. ("The ultimate resource," the great Julian Simon called it.) Better machines, computers, tools, and other inputs vastly increase the power of unaided labor, enlarging the volume of goods that can be produced in an hour. When that happens, wages go up and time prices fall. That is called progress, though I don't mean to imply that money is all that's required for happiness. (We also ought to pay tribute to fossil fuels and their producers, without which this could not have happened.)

One more ingredient is needed: competition among producers and employers free of government fetters. Without it, the potentially improved terms of trade won't be converted into consumer welfare. 

These insights are is central to a new book, Superabundance: The Story of Population Growth, Innovation, and Human Flourishing on an Infinitely Bountiful Planet by Marian L. Tupy and Gale L. Pooley. But I first encountered this insight in Myths Of Rich And Poor: Why We're Better Off than We Think (2000) by Michael W. Cox and Richard Alm. (Listen to Keith Knight's interview with Tupy.)

What ought to matter, then, is not the differences in living standards but the absolute levels. The change at the lowest level alone is a good proxy for the general condition. Equality is a chimera and a destructive one at that. What we should want to see eradicated is real poverty, not inequality. Poverty is a comparative matter as well, however, since no matter how affluent the lowest income group is, it is still at the bottom. So the focus on (relative) poverty can also be an unfortunate distraction. We must keep our eye on the ball: real poverty.

America's lowest-income population is better off than even their recent ancestors, not to mention many people around the world today. But that doesn't mean it couldn't be even richer. The way to bring that about is to eliminate every government impediment to wealth creation, business formation, entrepreneurship, and labor mobility. That means eliminating everything from business regulations and subsidies to occupational licensing to home-building restrictions to intellectual property to taxes and much more. That's a large enough agenda to keep any politician busy for a while.

TGIF: National Conservatism's Ominous Economics

National conservatism is objectionable on many counts -- the name in itself tells you that -- but it does pay tribute to free enterprise. A closer look, however, may cause one to doubt its commitment.

The movement's official Statement of Principles includes Principle 6, which begins encouragingly, though predictably tradition-bound:

We believe that an economy based on private property and free enterprise is best suited to promoting the prosperity of the nation and accords with traditions of individual liberty that are central to the Anglo-American political tradition. We reject the socialist principle, which supposes that the economic activity of the nation can be conducted in accordance with a rational plan dictated by the state.

So far pretty good. When people are free to act peacefully, most will engage in the voluntary exchange of goods and services (including labor) to achieve better lives for themselves and their families. In the process they will acquire possessions the security of which is necessary to the pursuit of sustained, even lifelong projects of all kinds (and not only commercial) aimed at that betterment. In other words, free enterprise and free trade take place when we are left free to pursue our broad interests through peaceful social interaction and the division of labor. It's a bottom-up, emergent environment that requires no coaxing from the government. (Historically, nonstate customary law emerged along with production, the division of labor, and trade. It did not wait for wise rulers to create an appropriate legal environment.)

But then the Statement of Principles starts its trek downhill: "[T]he free market cannot be absolute."

This is ominous. First, it's far from clear what that means. It should be obvious that no enthusiast of the free market thinks society ought to consist entirely of money-making. Life is more than production and trade of material values. Everyone knows that.

The sentence suggests to me that, according to the national conservatives (natcons), people -- even when they restrict themselves to peaceful consensual activities  -- can't be completely free of the cold hand of the state. The very rationale of the Statement tells us this. After all, these are the principles of "national conservativism." It's a nationalist movement. Its essential element is protecting the nation-state through the government. The existence of individuals is not denied, but their interests (as they conceive them) are subordinate to something called national interest. Individuals do not exist for their own sake. Therefore, every consideration is to be passed through the national interest filter. At bottom, then, national conservatism is a collectivist project. We cannot forget that, much less hope for an affinity between natcons and libertarians.

The concern with national interest prompts the question: as conceived by whom and by what criteria? The answer presumably is: according to the criteria of those who are elected to and are able to remain in office. The many problems posed by the perverse effects of democratic politics have been well-documented in theory and history. They include the impotence of any one vote, rational ignorance, rational irrationalism, concentrated benefits/thinly spread costs, inflated political transaction costs, apparently benign incrementalism, campaign theatricality, elites' access to power, and limited accountability. So right from the start, the statement poses more questions than it answers. It does little to reassure people who place a priority on individual liberty. In short, it ignores public-choice economist James Buchanan's call for "politics without romance."

Politicians and bureaucrats, then, would be assigned the task of letting us know when we have, in their judgment, pursued market activities too much. Natcons declare themselves in favor of the rule of law, but remember: the content of the law is as important as due process. It's not enough to be free from decrees handed down on the fly. We also need freedom from duly enacted oppressive legislation, that is, rules that forbid or specify the terms of consensual conduct.

"Economic policy must serve the general welfare of the nation," the statement continues. Clearly, for national conservatives, it's not enough that policy-makers abstain from violating the individual's right to life, liberty, and the pursuit of happiness because through freedom, tradition may fall by the wayside, and the natcons can't have that.

The best explainers of how markets work -- I'm thinking of the Austrian economists -- have shown that the general welfare is exactly what the pursuit of individual welfare in self-regulating markets accomplish. Adam Smith and his best predecessors understood this, even if they got some details wrong.

Let's never forget that strictly speaking, markets don't actually do anything. Only individual human beings act. When they act in a market setting, which is at once economic, legal, and cultural, it's as if people are led by Adam Smith's metaphorical "invisible hand" to do well for themselves by doing good for others. We must supply what others demand because bankruptcy awaits those who ignore others. Barred from government power and forbidden from using physical force and fraud directly, they will seek their own welfare by catering directly or indirectly to consumers. We may not always like what every consumer wants, but as long as no one can initiate force directly or through the state, we can secure ourselves, individually or in association with others, from undesirable influences.

Unsurprisingly, the natcons are dubious about globalism. That word means different things to different people, but the natcons don't like even what libertarians mean: the free movement of people, goods, and money across national lines without government impetus or impediment -- the division of labor writ large. Economists have long demonstrated that global welfare is best enhanced by that route. Significant, though incomplete moves in that direction over the last several decades have gone a long way toward wiping out absolute poverty and infant mortality.

The natcons, like the economic nationalists on the left, lament that "globalized markets allow hostile foreign powers to despoil America and other countries of their manufacturing capacity, weakening them economically and dividing them internally." This is the "hollowed-out America" claim. The problem with the claim is that American factories still produce an incredible volume of goods. What's changed is technology: many fewer people are needed to work in those factories because labor-saving computers and machines are far more productive than people working in jobs that not very long ago were condemned for their mind-numbing drudgery. Jobs that parents once hoped their children would never have to do are now looked to nostalgically by both the natcons and the Michel Moore left.

The Statement goes on:

Crony capitalism, the selective promotion of corporate profit-making by organs of state power, should be energetically exposed and opposed.

That sounds good, but the natcons will have to explain how their policies will avoid crony capitalism. Industrial policy, which is what the national conservatives really want, is an engraved invitation to well-connected business interests to the detriment of everyone else.

More could be said, but you get the idea. The Statement's embrace of free enterprise is hollow indeed. Government intervention, complete with tariffs, import quotas, immigration restrictions, a military-industrial-science complex, and subsidies -- all necessarily constituting de facto central planning -- would be rampant, as would be the lobbying frenzy for special consideration. It's no comfort to know that our rulers would be motivated by the national interest.

TGIF: Jefferson on Not Trusting the State

Regardless of written constitutions and the laws on the books, individual liberty is always at risk. And as liberty goes, so goes our capacity to live well, to achieve the good life as rational, virtuous social beings.

The danger comes from left and right, both of which aspire to have a body of elders impose narrow cultural and moral norms on everyone, overriding our right to think for ourselves. (Progressives and National Conservatives have a lot in common in that regard, even if they differ on what is to be imposed.)

This point about the fragility of liberty was well understood by the Irish politician, judge, and orator John Philpot Curran (1750-1817), who said: "The condition upon which God hath given liberty to man is eternal vigilance; which condition if he break, servitude is at once the consequence of his crime and the punishment of his guilt."

As often happens, variations of this insight have been attributed to other people, most famously Thomas Jefferson, who is widely and apparently erroneously thought to have said more pithily: "The price of liberty is eternal vigilance." Curran has missed out on the credit he deserves.

At any rate, we have a problem. Although liberty is never safe from political ambition or even good intentions, most people are understandably absorbed in raising their families, earning their livelihoods, and just plain living. Thinking about liberty, much less exercising vigilance, has a low priority -- if it is on their agendas at all. I'm not finding fault; it's just a fact.

Hence the need for a degree of specialization. Libertarians to one extent or another specialize in keeping watch over liberty and drawing the public's attention to dangers from governments and nongovernment sources. These aren't entirely two separate categories because if an influential segment of the public comes to believe that liberty must be curtailed, such sentiment could find its way into the halls of power. For example, if enough people decide that offensive words or obscene images are equivalent to violent acts, politicians may take up that cause and prohibit so-called hate speech and the like. This has happened in Great Britain, where citizens can be visited by the police, fined, and compelled to take a sensitivity course for posting something on social media that allegedly made someone feel anxious. So far, thanks to the tradition of free speech and press recognized in the First Amendment, that does not happen in the United States. But we mustn't rest on our laurels. A violation could be just around any corner, and we can't be sure from which direction it will come.

Although Jefferson did not say, "The price of liberty is eternal vigilance." we know he believed it. We know this because of his 1798 Kentucky Resolutions, which he wrote anonymously for the state legislature in opposition to the Alien and Sedition Acts of that year. The Acts were passed by the Federalist party-controlled Congress under Federalist President John Adams. (Jefferson, who was not a Federalist, was the vice president at the time.) As one description of the Acts puts it:

The Resolutions by Jefferson and Madison were provoked by the Alien and Sedition Acts adopted by a Federalist-dominated Congress during the Quasi-War with France; those Acts gave the president the authority to deport any alien whom he thought a threat and made it illegal to criticize the president or the Congress. Dozens of people were prosecuted under the Sedition Act, with prosecutions targeted at newspaper editors who favored the new Democratic-Republican party – Jefferson’s party. Seeing such political prosecutions of free speech as a fundamental threat to the republic, Jefferson referred to this period as a “reign of witches."

Federalist support for the Acts was also fueled by Jeffersonian sympathy for the French Revolution. The government's fears about French influence in the United States had reached a fevered pitch.

In his Kentucky Resolutions -- a second, shorter resolution written by an unknown person passed in 1799 -- Jefferson invoked the principle that the Constitution delegated only certain limited powers to the national government and therefore the states individually could check that government whenever it broke through the limits. Hence, the document declared the Alien and Sedition Acts  "void and of no force" and requested their repeal. (Jefferson's draft called for nullification, but that language did not make the final document. It did make the second version, however.)

In making his case, Jefferson wrote something that more people need to understand, especially politicians and pundits who are sanguine about democracy. His document declared it is resolved:

that it would be a dangerous delusion were a confidence in the men of our choice to silence our fears for the safety of our rights: that confidence is every where the parent of despotism: free government is founded in jealousy and not in confidence; it is jealousy & not confidence which prescribes limited Constitutions to bind down those whom we are obliged to trust with power. [Emphasis added.]

Hammering the point home, Jefferson concluded: "In questions of powers, then, let no more be heard of confidence in man, but bind him down from mischief by the chains of the Constitution." How interesting that he used the word jealousy!! The dictionaries tell us that one meaning of that word is intense vigilance. Had he read Curran's words?

By the way, those words might have gotten Jefferson kicked off Twitter and Facebook.

For Jefferson, the idea that we can elect rulers and then leave them to the business of governing us was a recipe for tyranny, even if only the "soft tyranny" foreseen by Alexis de Tocqueville. (See my "'What Sort of Despotism Democratic Nations Have to Fear'" for some of Tocqueville's sobering predictions of the harm that democratic governments could do to the people.)

I'll close by noting that, unfortunately, Jefferson was too trusting in the Constitution's capacity to bind those given power. (Remember that the Constitution did not prevent the passage of the Alien and Sedition Acts less than a decade after its ratification. Think of all that's happened since.)

Indeed, no less an authority on the Constitution, James Madison acknowledged that any constitution must delegate implied powers; that is, powers not expressly allowed to the state: "[I]t was impossible to confine a government to the exercise of express powers;" he said, "there must necessarily be admitted powers by implication, unless the constitution descended to recount every minutiae." He said this during a House debate over what would become the beloved Tenth Amendment in the Bill of Rights, which reserves to the states or the people "the powers not delegated" to the national government. Madison, who is famous for saying the national powers were "few and defined," refused to allow the word expressly to be inserted before delegated. Progressivism isn't the root of the problem. (See my article "James Madison: Father of the Implied-Powers Doctrine." For a wider perspective, also see my America's Counter-Revolution: The Constitution Revisited.)

Hence, a constitution, no matter how good it looks, can't help but create a false sense of security about liberty, which is exactly what Jefferson was worried about in his call for jealousy and not confidence toward the state. Particular people will be empowered to interpret any constitution, and they, even if well-intentioned, are likely to see things differently from freedom-loving individuals.

As Lysander Spooner pointed out in an 1870 essay: "But whether the Constitution really be one thing, or another, this much is certain -- that it has either authorized such a government as we have had, or has been powerless to prevent it. In either case it is unfit to exist.”