What Price a Planned Economy?

On my nightstand right now is “The Fatal Conceit: The Errors of Socialism” by Hayek. I’m only about halfway through but I can more or less sum up what he’s trying to say; proponents of central planning, i.e., ‘Socialism’ or the more general ‘Collectivism’, are fundamentally wrong on the facts of Anthropology. Put simply, no part of our evolution as Human Beings from purely instinctual animals to rational beings was or could have been planned. Every single occurrence in human history where one or more individuals attempted to control or plan society (economy, culture, etc.) has resulted in that society’s stasis in one degree or another. Everything vibrant and ‘progressive’ in all of history is the sole result of unabridged human endeavor; where individuals acting in their own rational self-interest develop customs and traditions amongst themselves that allow for innovation, wealth and progress.

There is not one single instance in all of human history where a collectivist society has planned a workable economy. The reason is because it is factually impossible.

Enjoy.

Russ

Via Mises.org

By. F.A. Hayek

I.

The link between classical liberalism and present-day Socialism — often still misnamed liberalism — is undoubtedly the belief that the consummation of individual freedom requires relief from the most pressing economic cares. If this seems attainable only at the price of restricting freedom in economic activity, then that price must be paid; and it may be conceded that most of those who want to restrict private initiative in economic life do so in the hope of creating more freedom in spheres which they value higher.

So successfully has the socialist ideal of freedom — social, economic and political been preached that the old cry of the opponents that socialism means slavery has been completely silenced. Probably the great majority of the socialist intellectuals regard themselves as the true upholders of the great tradition of intellectual and cultural liberty against that threatening monster — the authoritarian Leviathan.

Yet here and there, in the writings of some of the more independent minds of our time who have generally welcomed the universal trend toward collectivism, a note of disquiet can be discerned. The question has forced itself upon them whether some of the shocking developments of the past decades may not be the necessary outcome of the tendencies which they had themselves favored.

There are some elements in the present situation which strongly suggest that this may be so, such as the intellectual past of the authoritarian leaders, and the fact that many of the more advanced socialists openly admit that the attainment of their ends is not possible without a thorough curtailment of individual liberty.

We see that the similarity between many of the most characteristic features of the “fascist” and the “communist” regimes becomes steadily more obvious. Nor is it an accident that in the fascist states a socialist is often regarded as a potential recruit, while the liberal of the old school is recognized as the arch-enemy.

And, above all, the effects of the gradual advance toward collectivism in the countries which still cherish the tradition of liberty in social and political institutions provide ample food for thought. Anyone who has had an opportunity to watch at close range the intellectual evolution of the peoples who eventually succumbed to authoritarianism cannot fail to observe a very similar chain of cause and effect in a much less advanced state proceeding in the countries which are yet free.

Can we be certain that we know exactly where the danger to liberty lies? Was the rise of the fascist regimes really simply an intellectual reaction fomented by those whose privileges were abolished by social progress? Of course the direction of affairs in those countries has been taken out of the hands of the working classes and has been placed in those of a more efficient oligarchy. But have the new rulers not taken over the fundamental ideas and methods and simply turned them to their own ends:

It is astounding that these fateful possibilities which suggest themselves have not yet received more attention. If the suspicion of such a connection should prove correct, it would mean that we are witnessing one of the great tragedies in human history: more and more people being driven by their indignation about the suppression of political and intellectual freedom in some countries to join the forces which make its ultimate suppression inevitable. It would mean that many of the most active and sincere advocates of intellectual freedom are in effect its worst enemies and far more dangerous than its avowed opponents, because they enlist the support of those who would recoil in horror if they understood the ultimate consequences.

II.

An attempt will be made here to show why this connection, which experience suggests, must be regarded as of a necessary character — as dictated by the inherent logic of things.

The main point is very simple. It is that the central economic planning which is regarded as necessary to organize economic activity on more rational and efficient lines, presupposes a much more complete agreement on the relative importance of the different ends than actually exists. Therefore, in order to be able to plan the planning authority must impose upon the people that detailed code of values which is lacking.

And imposing here means more than merely reading such a detailed code of values into the vague general formulae on which alone the people are able to agree The people must be made to believe in this particular code of values, since the success or failure of the planning authority will in two different ways depend on whether it succeeds in creating that belief. On the one hand, it will only secure the necessary enthusiastic support if the people believe in the ends which the plan serves; and on the other hand, the outcome will only be regarded as successful if the ends served are generally regarded as the right ones.

A fuller exposition must begin with the problems which arise when a democracy begins to plan.

Planning must be understood here in the wide sense of any deliberate attempt at central direction of economic activity which goes beyond mere general rules that apply equally to all persons, and which tells different people individually what to do and what not to do. The demand for such planning arises because people are promised a greater measure of welfare if industry is consciously organized on rational lines and because it seems obvious that those particular ends which each individual most desires can be achieved by means of planning. But the agreement about the ends of planning is, in the first instance, necessarily confined to some blanket formula like the general welfare, greater equality or justice, etc.

Agreement on such a general formula is, however, not sufficient to determine a concrete plan, even if we take all the technical means as given. Planning always involves a sacrifice of some ends in favor of others, a balancing of costs and results, and this presupposes a complete ranging of the different ends in the order of their importance. To agree on a particular plan requires much more than agreement on some general ethical rule; it requires much more than general adherence to any of the ethical codes which have ever existed; it requires that sort of complete quantitative scale of values which manifests itself in the actual decisions of every individual but on which, in an individualist society, agreement is neither necessary nor present.

This fact — that a measure of agreement which does not exist is required in order to translate the apparent agreement on the desirability to plan into concrete action — has two important consequences.

In the first instance it is responsible for the conspicuous inability of democratic assemblies to carry out what is apparently the expressed will of the people, because it is only when it comes to translate the vague instructions into action that the lack of real agreement manifests itself. Hence the growing dissatisfaction with the “talking shops” which fail to carry out what to the man in the street seems a clear mandate.

III.

The second effect of the same cause, which appears wherever a democracy attempts to plan, is the general recognition that if efficient planning is to be done in a particular field, the direction of affairs must be “taken out of politics” and placed in the hands of independent, autonomous bodies. This is usually justified by the technical character of the decisions to be made, for which the members of a democratic assembly are not qualified.

But this excuse does not go to the root of the matter. Alterations in the structure of the civil law are no less technical and no more difficult to appreciate in all their implications; yet nobody would seriously suggest that legislation should here be delegated to a body of experts. The fact is that such legislation will be carried no further than is permitted by true agreement between a majority.

But in the direction of economic activity, say of transport, or industrial planning, the interests to be reconciled are so divergent that no true agreement on a single plan could be reached in a democratic assembly. Hence, in order to be able to extend action beyond the questions on which agreement exists, the decisions are reserved to a few representatives of the most powerful “interests.”

But this expedient is not effective enough to placate the dissatisfaction which the impotence of the democracy must create among all friends of extensive planning. The delegation of special decisions to many independent bodies presents in itself a new obstacle to proper coordination of state action in different fields.

The legislature is naturally reluctant to delegate decisions on really vital questions. And the agreement that planning is necessary, together with the inability to agree on a particular plan, must tend to strengthen the demand that the government, or some single person, should be given power to act on their own responsibility. It becomes more and more the accepted belief that if one wants to get things done, the responsible director of affairs must be freed from the fetters of democratic procedure.

Democratic government has fallen into discredit because it has been burdened with tasks for which it is not suited. Here is a fact of the greatest importance which has not yet received adequate recognition. Yet the fundamental position is simply that the probability of agreement of a substantial portion of the population upon a particular course of action decreases as the scope of state activity expands.

There are certain functions of the state on the exercise of which there will be practical unanimity. There will be others on which there will be agreement among a substantial majority. And so on until we come to fields where, although every individual might wish the government to intervene in some direction, there will be almost as many views about how the government should act as there are different persons.

Democratic government worked successfully so long as, by a widely accepted creed, the functions of the state were limited to fields where real agreement among a majority could be achieved. The price we have to pay for a democratic system is the restriction of state action to those fields where agreement can be obtained; and it is the great merit of a liberal society that it reduces the necessity of agreement to a minimum compatible with the diversity of individual opinions which will exist in a free society.

It is often said that democracy will not tolerate capitalism. But if here “capitalism” means a competitive society based on free disposal over private property, the much more important fact is that only capitalism makes democracy possible. And if a democratic people comes under the sway of an anti-capitalistic creed, this means that democracy will inevitably destroy itself.

IV.

But if democracy had to abdicate only from the control of economic life, this might still be regarded as a minor evil compared with the advantages expected from planning. Indeed, many of the advocates of planning fully realize — and have resigned themselves to the fact — that if planning is to be effective, democracy in the economic sphere has to go by the board.

But it is a fatal delusion to believe that authoritarian government can be confined to economic matters. The tragic fact is that dictatorial direction cannot remain confined to economic matters but is bound to expand and to become “totalitarian” in the strict sense of the word. The economic dictator will soon find himself forced, even against his wishes, to assume dictatorship over the whole of the political and cultural life of the people.

We have already seen that the planner must not only impose a concrete and detailed scale of values upon the vague and general instructions given by popular clamor, but must also, if he wants to act at all, make the people believe that this imposed code of values is the right one. He is forced to create that unity of purpose which — apart from national crises like war — is absent in a free society. Even more, if he is to be allowed to carry out the plan which he thinks to be the right one, he must retain the popular support, that is, he must at all costs appear successful.

The decision on the relative importance of conflicting aims is necessarily a decision about the relative merits of different groups and individuals. Planning becomes necessarily a planning in favor of some and against others. The problem here is, of course, not that the different people concerned have not the most decided opinions on the relative merits of their respective wishes; it is rather that these opinions are irreconcilable. But the ground on which the more or less arbitrary decision of the authority rests must be made to appear just, to be based on some ultimate ideal in which everybody is supposed to believe.

The inevitable distinction between persons must be made a distinction of rank, most conveniently and naturally based on the degree to which people share and loyally support the creed of the ruler. And it further clarifies the position if to the aristocracy of creed at one end of the scale there corresponds a class of outcasts at the other, whose interests can in all cases be sacrificed to those of the privileged class.

But conformity to the ruling ideas cannot be regarded as a special merit, although those who excel by their devotion to the creed will be rewarded. It must be exacted from everybody. Every doubt in the rightness of the ends aimed at or the methods adopted is apt to diminish loyalty and enthusiasm and must therefore be treated as sabotage.

The creation and enforcement of the common creed and of the belief in the supreme wisdom of the ruler becomes an indispensable instrument for the success of the planned system. The ruthless use of all potential instruments of propaganda and the suppression of every expression of dissent is not an accidental accompaniment of a centrally directed system — it is an essential part of it.

Nor can moral coercion be confined to the acceptance of the ethical code underlying the whole plan. It is in the nature of things that many parts of this code, many parts of the scale of values underlying the plan, can never be explicitly stated. They exist only implicitly in the plan. But this means that every part of the plan, in fact, every action of the government or its agencies, becomes sacrosanct and exempt from criticism.

It is, however, only the expression of criticism that can be forcibly suppressed. But doubts that are never uttered and hesitation that is never voiced have equally insidious effects, even if they dwell only in the minds of the people. Everything which might induce discontent must therefore be kept from them. The basis for comparison with conditions elsewhere, the knowledge of possible alternatives to the course taken, information which might suggest failure on the part of the government to live up to its promises or to take advantage of opportunities to improve the lot of the people — all these must be suppressed.

Indeed, there is no subject that has not some possible bearing on the estimation in which the government will be held. There is consequently no field where the systematic control of information will not be practiced.

That the government which claims to plan economic life soon asserts its totalitarian character is no accident — it can do nothing less if it wants to remain true to the intention of planning. Economic life is not a sector of human life which can be separated from the rest; it is the administration of the means for all our different ends. Whoever takes charge of these means must determine which ends shall be served; which values are to be rated higher and which lower — in short, what men should believe and strive for. And man himself becomes little more than a means for the realization of the ideals which may guide the dictator.

It is to be feared that to a great many of our contemporaries this picture, even should they recognize it as true, has lost most of the terror which it would have inspired in our fathers. There were, of course, always many to whom intellectual coercion was only objectionable if it was exercised by others, and who regarded it as beneficial if it was exercised for ends of which they approved.

How many of the exiled intellectuals from the authoritarian countries would be only too ready to apply the intellectual coercion which they condemn in their opponents in order to make the people believe in their own ideals — incidentally another illustration for the close kinship of the fundamental principles of fascism and communism.

But although the liberal age was probably freer from intellectual coercion than any other, the desire to force upon people a creed which is regarded as salutary for them is not a new phenomenon. What is new is the attempt to justify it on the part of the socialist intellectuals of our time.

There is no real freedom of thought in a capitalist society, so it is said, because the opinions and tastes of the masses are inevitably shaped by propaganda, by advertising, by the example of the upper classes and by other environmental factors which relentlessly force the thinking of the people into well-worn grooves. But if, the argument proceeds, the ideals and tastes of the great majority are formed by environmental factors which are under human control, we might as well use this power to turn their thoughts in what we think a desirable direction. That is, from the fact that the great majority have not learned to think independently but accept the ideas which they find ready-made, the conclusion is drawn that a particular group of people — of course, those who advocate this — are justified in assuming to themselves the exclusive power to determine what the people should believe.

VI.

It is not my intention to deny that for the great majority of individuals the existence or nonexistence of intellectual freedom makes little difference to their personal happiness; nor to deny that they will be equally happy if born or coaxed into one set of beliefs rather than another, and whether they have grown accustomed to one kind of amusement or another.

That in any society it will be only the comparatively few for whom freedom of thought is of any significance or exists in any real sense is probably only too true. But to deprecate the value of intellectual freedom because it will never give everybody the same opportunity of independent thought is completely to miss the reasons which give intellectual freedom its value. What is essential to make it serve its function as the prime mover of intellectual progress is not that everybody may think or write everything, but that any cause or any idea may be argued by somebody.

So long as dissent is not actually prevented, there will always be some who will query the ideas ruling their contemporaries and put new ideas to the test of argument and propaganda. The social process which we call human reason and which consists of the interaction of individuals possessing different information and different views, sometimes consistent and sometimes conflicting, goes on.

Once given the possibility of dissent there will be dissenters, however small the proportion of people who are capable of independent thought. Only the imposition of an official doctrine which must be accepted and which nobody dare question can stop intellectual progress.

How completely the imposition of a comprehensive authoritarian creed stifles all spirit of independent inquiry; how it destroys the sense for any other meaning of truth than that of conformity with the official doctrine; how differences of opinion in every branch of knowledge become political issues — these must be seen in one of the totalitarian countries to be appreciated.

We must hope that those in the Western world who seem to be ready to sacrifice intellectual freedom because it does not mean the same economic opportunity for all will yet realize what is at stake.

The great danger comes from the fact that we take so much of the inheritance of the liberal age for granted — have come to regard it as the inalienable property of our civilization — that we cannot fully conceive what it would mean if we lost it. Yet freedom and democracy are not free gifts which will remain with us if we only wish.

The time seems to have come when it is once again necessary to become fully conscious of the conditions which make them possible, and to defend these conditions even if they seem to block the path to the achievement of other ideals.

F.A. Hayek (1899–1992) was a founding board member of the Mises Institute. He shared the 1974 Nobel Prize in Economics with ideological rival Gunnar Myrdal “for their pioneering work in the theory of money and economic fluctuations and for their penetrating analysis of the interdependence of economic, social and institutional phenomena.” See Friedrich A. Hayek’s article archives.

This article was originally published in the Contemporary Review of London, April 1938. It was reprinted in American Affairs, Vol. 7, No. 33 (1945), pp. 178–181.

Voluntarism or Self-Interest?

This is an incredibly important lesson to learn from the Austrian School of Economics. You can apply the lesson Williams talks about below to virtually every single product of human endeavor. It is a bedrock principle of human nature and as close to economic law as you will ever find. Also note that there really is no such thing as "voluntarism" once the government is involved because of the ability to coerce and punish. What do you think would happen if the government controlled any given industry and the means of production and those individuals who were tapped to run the industry or pay for it decided not to do so?

They'd go to jail. That's what.

For a more scholarly explanation of classical economic theory vs. the socialist "exploitation" theory, read George Reisman's excellent piece at Mises here.

Russ

Via FrontPageMag.com

By Walter Williams

How many things in our lives would we like to depend upon the generosity and selflessness of our fellow man, and do you think we would like the outcome? You say, “Williams, are you now putting down generosity and selflessness?” No, I’m not. Let me ask the question in a more direct way. Say you want a nice three-bedroom house. Which human motivation do you think would get you the house sooner: the generosity of builders or the builders’ desire to earn some money? What about a nice car? Which motivation of auto companies and their workers do you trust will get you a car sooner: the generosity of owners and workers, or owner desire for profits and worker desire for wages?

As for me, I put my faith in people’s self-interest as the most reliable way to get them to do what I want and believe most other people share my faith. What would your prediction be about the supply of housing, cars and most other things if Congress enacted a law mandating that a house or car could only be donated, not sold? If you said there would be a shortage of houses and cars, go to the head of the class.

Bone marrow transplantation is a relatively new medical procedure that is used to treat diseases once thought incurable such as leukemia, aplastic anemia, Hodgkin’s disease, immune deficiency disorders and some solid tumors such as breast and ovarian cancer. Every year, at least 1,000 Americans die and others suffer because they cannot find a matching bone marrow donor. The reason why there is a shortage of donors is the National Organ Transplant Act (NOTA), enacted by Congress in 1984. NOTA makes it illegal to give anything of value in exchange for bone marrow and that includes, for example, giving a college student a scholarship or a new homeowner a mortgage payment. Everyone involved in such a transaction — doctors, nurses, donors and patients — risks up to five years in a federal penitentiary.

There might be light at the end of the tunnel because the Washington-based Institute for Justice (ij.org), one of my very favorite liberty-oriented organizations, has brought suit against this inhumane practice of the U.S. Congress. The suit, Flynn v. Holder, was filed in the Los Angeles Division of the U.S. District Court for the Central District of California on Oct. 26, 2009. Doreen Flynn, the plaintiff, is the mother of five children, three of whom have Fanconi anemia, a serious genetic disorder affecting the blood whose sufferers often need a bone marrow transplant during their teen years.

The Institute for Justice is not challenging Congress’ ban on compensation for solid organs such as hearts, kidneys and livers. Instead, the lawsuit challenges only the provision of National Organ Transplant Act that bans compensation for bone marrow. The premise of the Institute for Justice’s legal challenge is that there is a fundamental biological distinction between renewable marrow cells and nonrenewable solid organs. In the case of bone marrow, the donor’s bone marrow is completely replenished in a few weeks. That’s less time than it takes for the human body to fully replenish a pint of donated blood that is often sold to blood banks.

Just about everyone would agree that there would be massive shortages and discontent if there were a congressional mandate that we must depend on our fellow man’s generosity for our home, our car, our food and thousands of other items that we use. Why then must a person depend on his fellow man’s generosity for an item like bone marrow that might mean the difference between life and death? There is no rhyme or reason for the congressional prohibition of bone marrow other than arbitrary unconstitutional abuse of power that far too many Americans tolerate and would like to see extended to other areas of our lives.

A Petition from Producers of Everything Connected with Health Care

Via Mises.org

By D.W. MacKenzie

A Petition from the Producers of Health Insurance, Medical Equipment, Drugs, Diagnostic and Surgical Procedures, Physical Therapy, and, Generally, of Everything Connected with Healthcare.

To the Members of the US Congress and Senate.

Ladies and Gentlemen:

You are on the wrong road. You embrace defective theories in which government produces abundance and low prices. You concern yourselves mainly with the fate of the consumer, but without knowledge as to how we in the private sector can attend to his needs. You wish to free him from lack of private competition, that is, to create a competitive market for healthcare through government intervention.

We come to offer you an admirable opportunity, because our — what shall we call it? — our theory? No, nothing is more offensive to those in power than the idea that theoretical laws might supersede state legislation. To put it in terms you can understand, we shall say, then, our personal interests — our personal interests, along with those of the consumer, are at stake.

We face the intolerable competition of a rival, placed, it would seem, in a condition so far superior to ours that our future is questionable. This rival can flood the healthcare market with health services at an incredibly low marginal cost. The moment he shows himself, our trade leaves us — all consumers are compelled to pay for his services, even those who still buy from us.

Given that consumers must pay this rival even if they reject his services, our industry faces potential stagnation. This rival, whose influence on the industry is already as broad as sunlight, is waging war mercilessly against us, and we suspect he is being stirred up by perfidious ex-Soviets, particularly because socialists have always sought our destruction.

You are this rival.

What we pray for is that you may decline passing additional laws requiring consumers to pay for healthcare through taxation. We trust that you will not regard our request as a satire, or refuse it without at least first hearing the reasons that we have to urge in its support.

First, if you impose taxpayer-funded healthcare, this will place consumers in a position where they must choose between paying for our services and opting for your "free" healthcare. As we have already noted, you have the power to tax. Citizens pay for your services whether they want them or not.

Second, the sad irony is that your so-called free public services are not only costly, they typically cost more than what could be provided privately. We in the private sector must survive by keeping costs low relative to revenue. You do not face this burden.

The power to tax enables you to bear high costs, or rather to shift such costs onto citizen taxpayers. Your bureaucracies are bloated and inflexible. You waste money on special-interest payoffs. You have failed to adequately fund existing entitlements, like Social Security and Medicare.

There are also serious issues with the quality of many of your services. Consumers are forced to pay direct and indirect taxes to fund public schools, even those schools that are dismal failures. Many consumers struggle to pay both taxes and private tuition.

Can you offer assurance that your proposed "competition" against our industry will not be equally ruinous? Why should we expect to survive competition against a rival with the power to tax? Why should our customers expect to remain sovereign as consumers in a government-dominated healthcare industry?

We foresee your objections, but there is not a single one of the things you object to that you have not caused yourself. Healthcare costs are rising, but you have imposed greater costs: through regulations that increase administrative costs, through licensing laws and other restrictions on private competition, and through frivolous and fraudulent malpractice lawsuits.

You may respond that we do not have much to lose at all, because the consumer will bear the expense. We have our answer ready:

It is true that you have often sacrificed the interests of the consumer when they are opposed to those of the producer. Many of us contribute to your campaigns specifically to gain influence over policies that affect us. Your power can work to our advantage. But the expense of lobbying for political privileges in our deeply politicized industry is itself a burden. Despite all there is to gain in winning your favor, we as an industry can easily expend as much in lobbying costs as there is for any of us to gain.[1]

To put it simply, your proposal to act as a mere rival lacks plausibility. We cannot compete against you in markets because you exert control over our entry into markets. Furthermore, you possess market-independent funding sources — the power to tax.

Your past record of sacrificing the consumer's interests casts doubt upon your stated goal of reducing costs for him. Many of us have benefited from a partnership with you in the past, but rivalry against you is futile. Given that you seem to be engaged in deceit, we cannot trust you.

You are on the wrong track. You may believe yourselves to be in a position of limitless power to reshape society, but this is not true. Economic laws exist, and we, as producers, want to use them for profit.

Your stated goal of assuming greater control over the economy for the purpose of improving consumer welfare is not credible or even logical. It is impossible to define the economic interests of consumers collectively.[2] You generally do not try to serve consumers in the first place. We do not trust you, and neither should anyone else.

Greedy-Bastard Economics

Via Mises.org

By Gary Galles

If your landlord or apartment manager hasn't gotten around to fixing your garbage disposal for weeks, how carefully do you think about why? If you are like many people, you simply blame your landlord or manager, rather than inquiring further.

This is an example of greedy-bastard economics: rather than tracing their understanding of something they dislike back to its ultimate source, people only trace it back until they get to someone they can demonize as a greedy bastard. That is, scapegoats become what Frederic Bastiat called "what is seen," while the real cause remains "what is unseen." Unfortunately, that real cause is frequently the coercive hand of government, moving control of resources to itself, and the blame for the resulting consequences to others.

In the case of rental housing, rent control rather than the "greedy-bastard" landlord may be the real cause. Rent control undermines landlords' incentives to provide the services tenants want, because it denies landlords the ability to receive adequate compensation to make their efforts worthwhile. What landlords are blamed for is in fact one of many predictable, adverse consequences of rent control, including housing shortages, increased discrimination, increased uses of subterfuges to evade the controls (like tying willingness to rent to astronomical key deposits or the simultaneous rental of furniture, parking or other goods), reduced construction, and deterioration of the housing stock.

All these predictable effects follow without landlords being any greedier than anyone else (although rent control might attract greedier people, who are more willing to do what it takes to get around the regulations), which should properly placesthe blame at the feet of the government body that imposed the controls. But instead, government gets to control resources without paying for them, while "greedy-bastard" landlords who would otherwise look for ways to cooperate with renters get the blame.

Rent control is not the only example of the adverse effects of price controls. All price ceilings reduce the quantities traded, wiping out the wealth that would otherwise be created by mutually agreed-upon arrangements. They also increase discrimination (and evasion efforts) by lowering the cost of saying "none for you." And people blame the greedy bastards they deal with directly rather than the greedy bastards in government who are the actual cause and who impose the cost of doing their will on others without compensation.

Price floors such as minimum wage laws, Davis-Bacon "prevailing wage" requirements (which far exceed prevailing wages), and agricultural price supports push allowed prices up instead of down. However, they also increase discrimination (by buyers rather than sellers), and reduce the quantity of mutually agreed arrangements and the wealth they would have created (by making buyers willing to buy less).

All of them increase the costs borne by producers, and therefore by consumers and taxpayers, but place blame on producers rather than the policy makers responsible. And as with all price controls, they make prices, which are the signals of relative scarcity by which social cooperation is maintained, misleading indicators. Market prices are messengers of the effects of government restrictions, but they are not themselves to blame.

Hidden taxes are another mainstay of greedy-bastard economics. They give the government resources and control, but give the blame to those whom people deal with directly. The employer half of Social Security and Medicare is a prime example. Employers must pay 7.65 percent directly to the government, on top of the wages they pay employees.

But since employers know they must bear those costs, they offer less pay for a given level of employee productivity. The consequence is anger at employers for not paying employees what they are worth, when any such effect is actually the result of compensation being siphoned off by government.

Similar effects are triggered by employer-paid unemployment, worker's compensation insurance, and other nonwage forms of compensation. The resulting government rake-off from employees' total compensation leaves them less to take home, triggering resentment at employers. But government claims credit for all the benefits those dollars finance.

Corporate taxes, which economists particularly object to for the large distortions and costs to society they cause, are another major example of greedy-bastard economics. To the extent that those higher costs result in higher prices, the corporations are demonized for greed, but government gets the resources. Similarly, to the extent these costs lead to reduced wages, workers blame employers, but government gets the resources. In addition, these taxes reduce the after-tax rate of return on corporate investments, reducing the level of those investments, slowing the growth of worker productivity and the income it would generate.

Similarly, taxes imposed on "not me" are ways for government to claim credit for the resulting spending without the blame for the tax burden. America's highly disproportionate, "soak-the-rich" income-tax burdens are the largest and most obvious example. These income taxes not only finance the largest fraction of government spending, but also allow almost two in five households to have negative income taxes, largely because of the refundable Earned Income Tax Credit.

In addition, taking away a great deal of the after-tax incentive for high-skill individuals to bear the risk and put in the effort to find ways to benefit others reduces the value of output supplied. Thus, it acts as a tax on others when the reduced supply of productive services raises prices.

"Not me" taxes include hotel room taxes, which are largely imposed on people from out of state to finance benefits for residents. They also include import tariffs and quotas, dumping restrictions, and other barriers to international trade. By the time the goods reach consumers, their burdens are already included in the price (as with value-added taxes in other countries), and sellers can once again be blamed for the revenues government receives.

Government mandates and regulations, whose estimated burdens exceed $1 trillion a year, also take advantage of greedy-bastard economics. The web of restrictions is vast, running the gamut from Sarbanes-Oxley burdens to low-income housing set aside to qualify for permission to build, yet buyers are only dimly aware of the burdens these rules impose on producers.

But whatever they are called, those regulations give government added control over resources. And, since they act like taxes (an employer doesn't care whether a $100,000 burden of dealing with government is called a tax or a regulation), they raise costs and prices to others, for which suppliers will largely be blamed.

Similarly, government barriers to entry, like licensing regulations, restrict supply and competition, but focus complaints about prices and shoddy performance on those in the industry. Antitrust laws, which often restrict competition in the name of protecting it, are used to demonize efficient firms and practices. Such laws let the government claim credit for consumer protection even as they undermine the competitive process that is the real protection.

Inflation is another page from the same playbook. While it is caused by government expansion in the money supply, those in government can always point fingers at some greedy bastards other than themselves, whether it is businessmen raising prices or workers demanding higher wages in response.

Greedy-bastard economics is also used to separate responsibility from blame for financial bubbles. For instance, the housing and bad-loan bubble was widely blamed (especially by those overseeing government regulations) on greedy loan originators and unregulated markets. This blame was used to promote increased government intervention as a cure.

But government's hand was everywhere you looked in any serious attempt to understand the alleged "market failure." The Fed's maintenance of interest rates far below what the level of savings would actually sustain made housing falsely profitable. Allegations of redlining led to implicit government requirements that banks lend to borrowers who didn't meet conventional financial standards, and whom banks knew often couldn't repay their debts.

Under pressure for financial malfeasance and other failings, Fannie Mae and Freddie Mac made it clear that they were in the market for "bad" loans in a big way (well over $1 trillion). Given that their hidden subsidies (particularly implicit government guarantees worth over $2 billion a year and lower capital requirements than the rest of the financial system) had made Fannie and Freddie by far the dominant players in mortgage lending, this declaration told others that bad loans were far safer than they really were. No matter how bad the loans, Fannie and Freddie would take them off your hands. When that implicit guarantee suddenly dissolved, market participants (worldwide, not just in the United States) were suddenly faced with the real risks and far-lower values of these assets.

Even the latest healthcare "reform" reflects greedy-bastard economics. Pundits blame insurance companies for rising healthcare costs, yet ignore the plethora of government mandates and restrictions, not to mention subsidies to subgroups of citizens (e.g., the elderly or poor), which raise the costs to everyone else. Similarly, insurance companies are blamed for excessive administrative costs, even though these are directed largely at dealing with fraud, government impositions, and the supposedly obvious waste of profits.

Having tarred insurance companies with the blame, government now proposes more greedy-bastard economics as the solution. Such policies will further increase costs that can be blamed on insurance companies: Companies won't be able to deny coverage for preexisting conditions, which means they must pool higher cost customers in with lower cost customers, thus requiring higher premiums. They will not be able to control risk by putting annual or lifetime caps on coverage, similarly raising costs that must be borne by all policy holders. They will be required to include certain preventative care with no extra charge, and to limit out-of-pocket costs, which also may maim the private markets for catastrophic coverage.

In reality, scarcity is the cause of many of the difficult choices individuals face. However, governments prefer to find "greedy-bastard" bogeymen to blame. This allows governments to play as saviors rather than as the parasites causing the problems in order to benefit favored constituencies at others' expense. But government has no power to eliminate scarcity.

Government, beyond its role of defending voluntary arrangements against force and fraud, only makes the effects of scarcity worse. It substitutes decisions by people with worse information and incentives, backed by the power of coercion, for decisions by people with better information and incentives. That is why it is actually government "solutions" that increase the influence of greedy bastards in society. After all, "greedy bastard" is an excellent description of someone who demands power over others without cost or their willing consent; and falsely blames others to gain it.

Gary M. Galles is a professor of economics at Pepperdine University. Send him mail. See Gary Galles's article archives. Comment on the blog.
You can subscribe to future articles by Gary Galles via this RSS feed.

Anatomy of an Economic Ignoramus

Another tour de force from Thomas Woods whose book 'Meltdown' is the only book you will ever have to read to know why the stock market crashed in 2008 and why "Government Bailouts Will Make Things Worse."

Now, this piece is longer than most but it's worth reading for two reasons:

First, it's worth reading because Mr. Woods completely and utterly deconstructs what passes for economic intelligence on the left.  I haven't seen this fine a take down in quite some time.  It's incredible.

Second, it's worth reading to see how Mr. Woods, after so eloquently, thoroughly and conclusively obliterating his targets complete ignorance on all matters economic, then adopts his target's style and simply declares the war in Iraq based on "ludicrous and transparent pretenses that led to as many as a million people dead and four million displaced. Prior to that, in the 1990s, we had a bipartisan sanctions regime that killed half a million Iraqi children." He has no evidence for this, he just feels that it's true like so many people, like his very target here, on the political Left.

To his credit, Mr. Woods acknowledges that the Bush Administration doesn't deny the statistics, how could they.  He instead sarcastically dismisses the entire rationale for the War by saying that the administration says it was "worth it".

Of course it was worth it.

Mr. Woods, as incredibly brilliant as he and many others at the Mises Institute are, simply cannot acknowledge that there are battles worth fighting despite the incredible economic and human costs.  I will never debate that War is not ridiculously costly in purely economic terms.  I recognize, for example, that the popular sentiment that WWII got us out of the Depression is patently false.  Read Robert Murphy's "The Politically Incorrect Guide to the Great Depression and the New Deal" to understand.

It is unfortunate that Mr. Woods lets his political views overwhelm him rather than sticking to the facts as he does for 95% of this wonderful piece. Instead, he lets us know that he doesn't like war and he toes the progressive line by declaring, falsely, that the War in Iraq was built on "ludicrous and transparent pretenses".  I wonder whether Mr. Woods, like Mr. Murphy, would acknowledge that, even though WWII didn't get us out of the Great Depression and was the single most costly event in human and economic terms in world history, it was undoubtedly "worth it".

The Austrian School is right on literally every single issue concerning economics.  For whatever reason however, they refuse to acknowledge that there are incidents in the human experience that transcend economics.

The world today is inarguably a better place because the United States went to War against Iraq.  Stated another way, the world today would inarguably be a far more dangerous place had the United States not gone to war with Saddam Hussein.  I won't use this space to explain why this is so, but should anyone desire to engage in a discussion of such, please feel free to let me know.

Enjoy Mr. Woods' article. Again, on the topic at hand he is second to none. But I urge you, dear readers, to inquisitively absorb Mr. Woods' means of deconstructing his target on economics and then ask yourselves why his tone and sophistication disappear once he reaches the subject of armed conflict with foreign nations.

There's a reason.

Russ

Via Mises Daily

By Thomas Woods, Jr.

We all encounter more than our share of foolish blog posts. Most of the time you simply have to let them be. You could spend the rest of your life correcting drones and automatons who will never have an original or unconventional thought no matter how much you prod them. Their seventh-grade teacher, who was also the track coach, taught them what they know, and they're sticking to it.

Once in a while, though, for your own sake and for the sake of readers who suspect the post is all wrong but aren't quite sure why, you let loose with a full-blown response. And that's what I'm doing here in reaction to a blog entry called "Peter Schiff: Medicare Recipients Are Lazy People Who Refuse to Pay for Their Own Health Care."

This is longer than my usual pieces, but I hope I am not trying the reader's patience too much. In block quotes are the words of a blog author who identifies himself, interestingly enough, simply as "Che."

Here we go.

I love it when right wing economists talk about "market forces" and "letting the free market run our economy." They make it sound like the free market is some altruistic being that always knows exactly what to do and when to do it.

I do not know of anyone who subscribes to this junior-camper caricature. For one thing, no free-market economist is dumb enough to use a phrase like "letting the free market run our economy." The free market is merely the matrix of free exchanges entered into by individuals. How can a matrix of free exchanges "run" anything?

Secondly, no free-market economist thinks the market "always knows exactly what to do and when to do it." If that were the case, how could free-market economists account for firms that go out of business?

The argument that free-market economists actually make is that on the free market, decisions regarding what to produce, in what quantities, using what methods, and in what locations, are made in light of satisfying the most urgent demands of consumers. Business firms find out very quickly what consumers want and what they do not want, and they adjust their production decisions accordingly.

Profits indicate that a particular industry is combining factors of production in a way that pleases consumers. As a result, production in that industry tends to expand. Likewise, losses indicate that value is being reduced or destroyed, and that factors of production are being employed in lines of production that please consumers less, at the expense of other lines of production where they might have produced something consumers wanted more.

There are limitless ways business firms can combine factors of production to produce an equally limitless potential array of goods. Thankfully, firms do not have to grope around in the dark amid these trillions of choices.

If their production process uses an input more urgently needed elsewhere, that input gets bid away from them and they find a substitute. If they produce too much of something, their resulting losses prompt them to produce less, thereby releasing resources for the production of another good that consumers value more highly. At all times, resources are directed, in light of consumer wants, to those production processes in which they are most urgently demanded.

So no, markets do not know "exactly what to do and when to do it" — a juvenile caricature — but feedback from consumers' decisions does constantly push markets toward a more efficient use of limited resources.

Government, on the other hand, has no rational basis for determining what to produce, in what quantities, and so on. It gets its money not by providing a good that people voluntarily choose to purchase, but by seizing the funds from its subject population.

Since it therefore lacks a profit-and-loss feedback mechanism, every single production decision it makes is absolutely arbitrary, and necessarily wastes resources. It operates completely in the dark. It cannot adjust to consumer demand, since it has no way of calculating the best, least wasteful way to produce. More than that, it cannot even know what to produce.

The free market is not some emotionless, all knowing entity. It is controlled by humans who are susceptible to greed, corruption, and exploitation. The free market is only as pure as the fallible human beings that control it.

As we've seen, the free market is just a matrix of exchanges, so no one in his right mind would describe it as any kind of "entity," whether "emotionless," "all knowing," or "yellow with purple polka dots."

We'll deal with "corruption" and "exploitation" below. But in keeping with Che's charming devotion to government, he doesn't consider that its own officials might be susceptible to greed, corruption, and exploitation. Later, he suggests that corrupt politicians can simply be voted out of office (how's that one working out for you so far, Che?). He does not consider the possibility that corporations that do not produce what consumers want can likewise be voted out of the economy by merely abstaining from buying their products.

If free market principles were allowed to rule, like Schiff wants, what that means is everything is based on maximizing profit.

At this point we are all supposed to gasp at what a terrible prospect this would be. After all, the track coach and Michael Moore have told us about the wickedness of "profits," so what more is there to say, really?

But as we've seen above, profit is simply society's way of ratifying a firm's past production decisions. It indicates what consumers want, and (by the process of imputation) the best process for producing it. Profits attract further investment in a given line of production, until the increased supply of goods in that industry brings the rate of return there back down to the level that exists elsewhere in the economy. This is how we ensure that our limited resources are not wasted, and that the most urgently desired goods are produced.

In the absence of profit as a driving force, how exactly would Che like to see resources allocated? We can either allow consumer preferences to guide production, or let the personal preferences of a monopolist (i.e., government) dictate what should be produced and how. When the question is posed this way, the choice is pretty clear, which is why the question is never posed this way.

Incidentally, would Che prefer to base economic decision making on maximizing losses instead? Would that be better?

Two major byproducts occur when the only concern of an economy is profit.  1. Quality goes down because corners must be cut to save money and compete (See China).

Now Che, think about this for a minute. Suppose you had an economy in which profit was of no concern whatever. Would quality go up, then? Would we enjoy products of ever-increasing quality if businesses were not required to satisfy the consuming public (which is what earning profits means) in order to stay in business?

You don't think their freedom from the need to make profits might make them lazy, or unresponsive to consumer demand? You think they'd work overtime on high-quality products for the sake of the brotherhood of man, or the great fatherland, or whatever abstraction the regime proposes?

If the consumer wants high-quality merchandise, producers will compete to provide him with it. If everyone is producing low-quality garbage, there is a gigantic profit opportunity awaiting a newcomer who simply improves product quality. Don't you believe those evil corporations would jump at the chance to profit? Why in your scenario do those wicked, wily, greedy characters suddenly lose their drive to earn a return?

You will say that consumers won't pay higher prices for quality merchandise. But where does that arbitrary assertion come from? If they won't pay the higher prices, then that means they are satisfied with the existing level of quality, and that the money they might have spent on nicer things is in their view more urgently spent on something else — basic, no-frills products, say.

"We can either allow consumer preferences to guide production, or let the personal preferences of a monopolist (i.e., government) dictate what should be produced and how."

You, Che, are not in a position to judge their decision. If they will pay higher prices, then more upscale firms will cater to them — which, if you'd turn your head slightly and glance around a bit, you'll notice is how the economy already works.

There is, after all, no logical limit to the potential quality of merchandise. Following Chester Lampwick on The Simpsons, someone may purchase a solid-gold house. Now most people, in their search for higher-quality dwellings, may not want to live in a straw hut, but they are likewise prepared to stop well short of a solid-gold house. There is no nonarbitrary way to decide, apart from the voluntary spending streams emanating from consumers and the production decisions made on that basis, what ratio of quality to affordability people should choose.

Again, though, all we need to do is look around to find the refutation of Che's strange claim. Are automobiles today of lower quality than they were in, say, 1977? Would anyone care to trade in his Blu-ray player for a 1981 VCR? The Blu-ray also costs a teensy-weensy bit less, in real terms, than the 1981 VCR, I might add. I trust you that there is something wicked in all this, Che, but I'm just not seeing it.

2. Wages go down, because it [employers' drive for profits] pits workers against one another. For example, if there are no labor regulations, I can pay a woman significantly less than a man to do the same job. This forces wages down, because now a man must settle for a depressed wage if he wants a job.

This is why nonchemists do not write about chemistry, and nonbotanists stay out of botany. At this point our author is simply making things up.

An enormous amount could be said here, including the obvious point that although laborers do compete with each other (just as all factors of production do), employers have to compete forlabor, just as much as they have to compete for steel or any other input. But for a simple reply to the claim that under competitive conditions wages will fall, we ask the simple question: has this in fact happened?

During the 19th century, without any of the institutions that Che thinks make wages rise, real wages quadrupled. This is not supposed to happen, according to him — competition among workers should make wages go down. But whom are you going to believe, Che or your own eyes?

But now let's proceed to the second sentence: on a free market, Che could pay a woman less than a man, which means in turn that men would have to accept lower wages.

I'm not surprised Che believes wage rates are determined at the arbitrary whim of employers — it's the conventional wisdom among the general public, after all, and it would be unthinkable to deviate from that. We're hanging on for dear life to what our social-studies teacher taught us, evidently.

But if on a genuine free market, businesses can arbitrarily lower women's wages, followed in turn by men's, why don't they lower both men's and women's wages right now? Equal-pay legislation has nothing to say about lowering wages for both sexes, so why don't employers go ahead and use their magical wage-lowering powers right now? Why should they wait until equal-pay legislation is repealed, and then follow Che's convoluted path to this same outcome by first lowering women's wages and then forcing men to accept low wages as well?

The answer, of course, is that wage rates are not arbitrary. If businesses tried to do what Che proposes, the result would not be that male wages would be bid down. The competition for labor would drive women's wages back up.[1]

There is no point in pretending that the level of compensation workers enjoy today has anything to do with the minimum wage or labor unions; the vast majority of Americans earn much more than the minimum wage, and labor unions have always been a negligible factor in the United States. US workers' wages have consistently outpaced those of the much more heavily unionized countries of Europe. Che can account for none of this; we should, according to his logic, all be earning minimum wage.

Also completely neglected in Che's account is the tendency for real incomes to increase on a free market.

How does this process occur? When firms increase and improve the equipment and machinery at the disposal of workers, their labor becomes more productive. Imagine someone using a forklift, as opposed to stacking pallets with his bare hands, or producing books with modern equipment as opposed to a 16th-century printing press. The amount of production the economy is capable of is thereby increased, often dramatically, and this increase in production puts corresponding downward pressure on consumer prices (relative to wage rates).

Now there is nothing natural or inevitable about the availability of this productivity-enhancing capital equipment. It does not fall out of the sky. It comes from the wicked capitalists' abstention from consumption, and the allocation of the unconsumed resources in capital investment.

This process is the only way the general standard of living can possibly rise. Only in this way can the average laborer produce the tiniest fraction of what today he is accustomed to producing. It follows that only under these conditions can he expect to be able to consume the tiniest fraction of what today he is accustomed to consuming.

The increases in the productivity of labor that additional capital brings about push prices down relative to wage rates. By increasing the overall amount of output, such increases raise the ratio of consumers' goods to the supply of labor.[2] Put more simply, improvements in the production process that lead to an increased supply of output make that output cheaper and easier for people to acquire.

That's why, in order to earn the money necessary to acquire a wide range of necessities, far fewer labor hours are necessary today than in the past. Thanks to capital investment, which is what businesses engage in when their profits aren't seized from them (to the cheers of people like our friend Che), our economy is far more physically productive than it used to be, and therefore consumer goods exist in far greater abundance and are correspondingly less dear than before.

In 1950, for example, Americans had to work six minutes to earn the money that would buy them a loaf of bread; by 1999 that was down to just three and a half minutes. To be able to buy a dozen oranges in 1950 took 21 minutes of labor. It was only nine minutes by 1999. Paying for 100 kilowatts of electricity required two hours of labor in 1950, but only 14 minutes in 1999. Someone in 1900 would have had to work nine hours, as compared with four hours in 1950, and three hours in 1999, to earn the money to buy a pair of jeans. For a three-pound chicken, it was 160 minutes in 1900, 71 in 1950, and 24 in 1999.[3]

When Che wants to tax business firms, as you can be sure he does, he is advocating the direct sabotage of the process by which everyone in society sees his purchasing power rise. American society, in short, would have been far wealthier had top income tax rates been lower throughout the 20th century.

Had government not seized so many resources to squander on consumption, those resources would have been available for investments that would have made the economy permanently capable of producing far more wealth than otherwise. Everyone's standard of living would, as a result, have been far higher.

If there is no regulation of the "market forces" by the government, you essentially place the power in the hands of CEO's who have no accountability to anyone but their share holders, and in order to keep the share holders happy, profit must be maximized by any means necessary. If that means exploitation and corruption, so be it.

Since "exploitation" and "corruption" are not defined here, we have no way of knowing what Che is talking about. By "exploitation" he is presumably referring to the Marxian theory that intensified competition leads to lower wages, an absurdity we've already addressed.

By "corruption" he could mean one of two things. He could mean the use of fraud, theft, or some other violation of the law. If this is what he means, he is no longer speaking about the unhampered market, which punishes nonmarket, criminal behavior like that, and thus his comment is irrelevant. If someone violates the law, punish him. If he is guilty and isn't punished, that's hardly the market's fault — after all, who monopolizes the provision of courts and police? (I'll give you a hint: it isn't the free market.)

He could also mean the use of lobbying in order to win special privileges from government, or to hobble one's competitors. Once again he is not actually criticizing the free market, even though he thinks he is. Here his criticism is not of the free market but of government itself.

The free market contains no coercive mechanism to grant special privileges to any one party. Only government has the power to initiate coercion. You want a single, monopolistic institution to have plenary power to order society as it sees fit, and you're going to pretend to be surprised when it turns out to be dominated by antisocial forces?

If government regulations are allowed to control an economy, those who installed the regulations can be held accountable if the regulations are too intrusive.

Consider the 73,000 pages of the Federal Register, which lists all federal regulations. If even one of these pages were to be eliminated, we would all die instantly. They were put there to keep us safe! According to Che, not one of the regulations in those 73,000 pages could possibly be "too intrusive" — we would surely have repealed it if it were!

That reminds me of the student I once had who, upon learning that the Job Corps was a complete and utter failure by any conceivable standard, innocently asked why it wasn't repealed. I don't blame that student — with that question she was starting to figure things out for the first time. Che actually runs a blog without ever asking a single unconventional question.

In Che's world, the entire "capture" literature on regulation, which describes how industry and large firms in particular influence regulation to benefit themselves, does not exist. Regulation is solely for the public good.

Here, on the other hand, is a small taste of reality.

In the usual caricature, if you support the free market then you support pollution and various other forms of property invasion. To the contrary, someone who believes in the free market opposes these things because they damage other people's property without their consent. That does not mean the only solution is "regulation." Here's a genuinely free-market way to think about these issues.

Che may also be referring to regulation of banking and the financial markets, which is actually quite heavy despite all the talk of "deregulation." Deregulation is almost always phony, as when financial institutions are allowed to make riskier bets while the government still insures their deposits.

Complaints about a lack of regulation are also beside the point. If you have a toppling house of cards, you don't need tape or glue — the functional equivalent of "more regulation." You need a whole new house, built on a solid foundation. In other words, you need a hard-money system that cannot be manipulated by governments or their central banks. That option does not exist in Che's world, since in his world the system we have now is already a free-market one. I've covered this a little bit here and here.

"You want a single, monopolistic institution to have plenary power to order society as it sees fit, and you're going to pretend to be surprised when it turns out to be dominated by antisocial forces?"

Moreover, existing regulators saw nothing wrong with the way the securitization model was working, and in fact financial institutions were in line with the various capital requirements proposed by international regulatory standards. The system of regulations itself gave banks an incentive to hold on to securitized loans, thereby undermining the risk dissipation function it existed to provide. Is the solution to add more regulators? Or could there be something wrong with the system itself — a system at war with the free market, a system that yields the extreme leverage and instability we periodically observe?

Another obvious question routinely overlooked in this context is why a regulator with no financial stake in an enterprise would know better how to satisfy consumer demand than a business owner whose own wealth depends on getting it right. How superstitious can you get?

Yet dime-a-dozen commentators calling for more regulation attribute magical powers to people who in the real world tend to be unworthy of these exaggerations. As Robert Higgs put it, "Had they been given even greater powers, budgets, and staffs, what enchantment would have transformed the regulators into smart, dogged champions of the public interest, rather than the time-serving drones and co-conspirators with the regulated firms that they have always been?"

How many business school or other graduate students aspire to become regulators? We'll put it kindly and simply observe that it's the slower ones who wind up in the regulatory agencies, and the brighter ones who wind up as successful businessmen. We expect a kid who graduated #505 out of a class of 508 not to get his clock cleaned by a kid who graduated #12?

Finally, the free market doesn't pump up the money supply and push interest rates down to levels that promote unsustainable bubbles. Had there been no Fed-created housing bubble in the first place, there could have been no resulting crash. The free market punishes reckless risk-takers, while it is government that bails them out (thereby encouraging them to take greater risks in the future). It was the Federal Reserve System, not the free market, from which the "Greenspan put" — the implicit promise to bail out major Wall Street players — emerged. TheFinancial Times warned that these guarantees were encouraging dangerously risky investments.

The free market makes no such guarantees, and thereby cultivates a more cautious and sensible class of entrepreneur. Might there be a lesson here?

Holding the government accountable for its actions is called Democracy.  Holding a CEO accountable for his or her actions is called impossible.

Could these be the most laughable lines of the whole piece? Che has swallowed the propaganda he got in school without a peep of independent thought. Our wise public servants are concerned for the common good, and anything they might do against the interests of the people are unfortunate aberrations — mere "corruption" that can be punished in the next election. For our political system holds government accountable to the people!

I could write a whole book on this, so let's stick to a couple obvious points. Our government launched a war in 2003 on ludicrous and transparent pretenses that led to as many as a million people dead and four million displaced. Prior to that, in the 1990s, we had a bipartisan sanctions regime that killed half a million Iraqi children. (Note that our leaders do not deny that statistic; they merely say the price was "worth it.")

Who, my dear Che, was held "accountable" for that? Anyone? What alleged sins of any US corporation even approach that?

The Federal Reserve System, which enjoys a government monopoly on the creation of legal-tender money, created the conditions that led to the present economic crisis. (I give some of the contours of the argument here and in Meltdown, my latest book.) Was anyone held "accountable" for that? In fact, who in government has been held accountable for anything relating to the financial crisis?

Are you telling us that the government bailouts were an example of public-spiritedness, rather than a transparent payoff to friends and allies of the regime? The bailouts, in fact, were an example of government intervention to prevent the free market from holding CEOs accountable.

The regime regularly kills, maims, destroys, steals, and, for good measure, spies on the people. How exactly is "democracy" keeping this thing "accountable," Che? Are you referring to the electoral process, in which Americans recently had a choice between a pro-empire, pro-bailout, pro-war Republican and a pro-empire, pro-bailout, pro-war Democrat?

You want to keep a CEO accountable? Stop buying his product. How do I stop buying the government's "product"? Oh, I forgot, I don't buy it — the money to fund it is seized from me.

"The bailouts, in fact, were an example of government intervention to prevent the free market from holding CEOs accountable."

There is a market for corporate control, by the way, but the very people who complain the loudest about unaccountable CEOs tend to be most opposed to, and want to place the greatest barriers in front of, corporate takeovers. Here again, government erects roadblocks in the way of the market's attempts to correct misallocations of resources.

Now, you may say I am being too hard on Che. The poor kid is just repeating what he learned in junior high. How can I blame him? This sort of propaganda is what kids are taught, and we can't fault Che for simply repeating whatever his teacher said.

I blame him for being so incorrigibly incurious. The brighter kids figure out they're being fed propaganda of the crudest and most obvious kind, which is designed to make them obedient little servants of their overlords, who claim to protect them from the evil exploiters they read about in their textbooks. These kids seek out the truth, and discover that the real exploiters are the overlords themselves, parasites on the productive economy, who live on the fruits of other people's labor while blaming the resulting social ills on the various bogeymen the kids have been taught to hate.

The slower kids, by contrast, memorize what the teacher tells them, reproduce it on the test, and repeat it like drones for the rest of their lives.

Thomas E. Woods, Jr. (visit his website) is a resident scholar at the Mises Institute. He is the author of the New York Times bestseller Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse. His other recent books include 33 Questions About American History You're Not Supposed to Ask, The Church and the Market: A Catholic Defense of the Free Economy, and The Politically Incorrect Guide to American History (a New York Times bestseller). Send him mail. See Thomas E. Woods, Jr.'s article archives. Comment on the blog.

You can subscribe to future articles by Thomas E. Woods, Jr. via this RSS feed.

Notes

[1] Factor pricing on the market, including original factors like labor, occurs by reverse imputation from consumer valuations of the finished product. Production theory is covered in Murray N. Rothbard, Man, Economy, and State: A Treatise on Economic Principles (Auburn, Ala.: Ludwig von Mises Institute, 1993 [1962]), chs. 5–9. The various myths about labor's inequality of bargaining power and the importance of labor unions to laborers' material wellbeing are discussed in Thomas E. Woods, Jr., The Church and the Market (Lanham, Md.: Lexington, 2005), pp. 73–78.

[2] George Reisman, Capitalism (Ottawa, Ill.: Jameson Books, 1996), p. 621.

[3] Michael Cox and Richard Alm, Myths of Rich and Poor (New York: Basic Books, 1999), p. 43.