Archive for April, 2010

Column on Are Government Regulators Incorruptible?

Are Regulators Incorruptible?

Tibor R. Machan

Enthusiast for increasing government regulations of people in business, including those in the financial markets, never bother to answer the one basic question that any rational person would need to have answered before joining them as champions of their proposed remedies of our economic wows. This question is, “Why would those in governments regulating those in markets manage to be incorruptible?” For incorruptibility is a presumption of the policy that these enthusiasts are committed to. Otherwise what’s the point? Where is the remedy?

You see, if those in government are not incorruptible, their regulation of business cannot be of any help. They would just as easily game the system as those whom they intend to regulate, indeed, more easily because of their legal power. Are there ways to stop them doing this? Would they be regulated by some other regulators who would make sure they aren’t corrupt? And then how would those regulators manage to be invulnerable to corruption? More regulators, ad infinitum?

It is plain common sense and historically fully validated that people in government easily fall prey to the temptation of corruption. Since the time of Aristotle and before it has been noted over and over again that people with power over other people tend toward corruption. Aristotle argued that despite the fact that the idea of an ideal leader of society sounds appealing, it is a trap because once in power, such “ideal” leaders tend to become despotic. Which is exactly true about government regulators, sometimes quite unintentionally (when the system goes bad).

As Lord Acton is often quoted to have said, “Power tends to corrupt and absolute power corrupts absolutely.” And this is no mere cheap slogan. Those in government have a great many ways to dodge any charge of corruption. A prominent legal device is sovereign immunity–since government officials, including regulators, are agents of the citizenry, they cannot be sued by us. It would be like suing ourselves! So the only way to cope with malpractice by such folks is to implore their bosses to fire them or to vote against those who hired them. Only if they are out and out thieves or embezzlers can they be touched. Favoring their pals as they make decisions, for example, isn’t something for which they can be convicted. And one of the big charges against government regulators is precisely that they favor those like them in the market place–former colleagues, past employers, etc.

The economic school of thought called “public choice theory” has developed this idea so well that some of its pioneers have received the Nobel Prize (Professor James Buchanan, for example). Others have shown that regulators don’t manage to anticipate problems early enough and by the time they go after some company about some possible malpractice, it’s too late. Also, regulators tend to worry about easily detected problems and leave those that are difficult to detect untreated. What is seen gets their attention but what is hidden does not.

Aside from these pitfalls government regulators face there is also the plain fact of their having agendas of their own; and there is the problem, as well, that they often have no clue what exactly is the public interest they are supposed to promote since the public interest is, in fact, a multitude of private interests pursued by millions of different market agents.

So, the bottom line is that government regulation is mired in confusion and the probability of ineptitude and malpractice, probably much more so than faced by market agents who are supposed to be regulated. So this faith in government regulation repeatedly voiced by Obama & Co. simply isn’t well founded. Indeed, it is most often misdirected. Sure, now and then regulators can do something right but even a broken clock shows time correctly twice a day. This is no reason to have confidence in such clocks any more than in government regulation.

Anytime I am told not to worry about things because the government will regulate something and we will be saved from the problems of reckless, anarchic free markets, I cringe about the naivete of those who believe such things. When will they learn?

Column on Anti-Libertarian Point Refuted

Anti-Libertarian Point Refuted

Tibor R. Machan

The English Marxist political philosopher Ted Honderich asks us to imagine a perfectly just society, constituted according to libertarian principles. Then he asks, rhetorically, whether it is possible that there exist starving people in such a society? (Sure, that might be so but that’s true of any society and much less likely in a free one.) So Honderich then continues: “[I]n this perfectly just society they have no claim to food, no moral right to it. No one and nothing does wrong in letting them starve to death. There is no obligation in this society, on the state or anything else, to save them from starving to death. It is not true of anyone that he or she ought to have helped them. This is vicious.”(p.44)

Here we have a blatantly misleading assessment of a free society as well as men and women in such a society. Yes, Honderich is right that no one has an enforceable claim on other people providing food for them. There is in such a country no legal right to be supported except by parents of their children. That’s correct.

But first, to backtrack a bit, libertarians do not usually claim that a society with a libertarian political system is “perfectly just.” Only Socrates has laid such claim to a society, namely the imaginary one in his Republic. What libertarians claim is that their legal order secures political and criminal justice better than do alternatives. With libertarian principles in its constitution, such a system has a better chance at resolving conflicts justly than do others.

Now to Honderich’s charge: In a society with such a system of law it is quite often morally wrong for many who know of such a case to fail to provide help. (If, however, they had more vital goals to pursue, say attending to their children’s medical needs, this wouldn’t be so.) Lack of generosity, compassion, or support for those who deserve it would be morally wrong. Indeed, it could well be true of many that they ought to help anyone in such dire straits and very wrong for them not to do so. What the libertarian is convinced of is that no such help may be coerced from anyone, that government, in particular, has no moral authority to mandate the help, to use its power to make some people help others. Government exists to secure our rights, not to make us morally good, whether as this is understood by modern liberals or by modern conservatives.

This is something very different from the claim that no one ought to help those in dire straits, quite the opposite. Where there is no unjust, coercive welfare state, it is the citizenry’s responsibility to reach our and help when people are suffering through no fault of their own.

Would there be such people in a free country? Of course. To begin with, the near-free countries around the globe, such as the USA, are also the most generous when, for example, tsunamis or earthquakes occur! The people give freely, without having to be made to do so. Then, also, if the administrators of a welfare state could find the extra resources to help the needy, why couldn’t the citizenry itself do this? After all, supposedly the welfare state is representative of its citizenry–it would be implementing policies of which the citizenry approves. So the same motives that may induce them to forge the welfare state would also induce them to be generous. The only difference would be that there would be no coercion involved.

By the way, Professor Honderich is also one of the most avid hard determinists in contemporary philosophical circles, so talk by him of what people ought to do and not do is entirely superfluous. He cannot mean it, not if he is convinced that que sera, que sera, what will be will be. Only men and women with free will could be implored to do anything they aren’t doing, including to provide help to the poor. There is no morality without freedom to choose. At most one can talk about prodding or encouraging certain kinds of behavior but since the behavior isn’t chosen by the agents, it has no moral significance.

Column on It wasn’t Capitalism, Stupid

It wasn’t Capitalism, Stupid

Tibor R. Machan

The Sunday, April 25, 2010, issue of The NYT Magazine carried a very clearly written essay by Roger Lowenstein, titled “Cracked Foundation, Fannie and Freddie are Broken. What would fixing them mean?” It further substantiates the point I have been making in numerous columns, essays and scholarly papers over the last several months, namely, that capitalism had nothing to do with the recent financial fiasco. Indeed, it was nearly all due to government meddling, especially with the policy exemplified best by the establishment and operation of Fannie Mae and Freddie Mac, the mortgage giants established by the federal government and recently bailed out by taxpayers at a cost of “upward of $125 billion.”

As Lowenstein put it, “government support of the mortgage twins was among the original sins of the financial crisis. It stemmed from the country’s affection for homeownership–a legacy of a frontier nation that subsidized homesteading for pioneers and encouraged later generations to homestead in the suburbs via the mortgage-interest deduction….”

Now whatever one may think of the sentiments that drove all this, one matter should be crystal clear: laissez-faire capitalism is entirely incompatible with such public policy. Accordingly, all the blather about how market fundamentalism (Paul Krugman’s favorite term) led to the fiasco should by now be admitted to be utterly false.

There is a lot more and anyone who insist that laissez-faire capitalism is the source of our wows would need to come to terms with what the essay makes evident, namely, that government meddling, overt and covert, was the culprit. And it is useful to note that this article is published in The New York Times, a paper that has backed the Krugman explanation all along. Admittedly, the Sunday magazine has, on a few occasions, published essays and notices that put forth a dissenting account, akin to what we get from Lowenstein. The first of those I noticed was published about a year ago, by Professor Niall Ferguson of Harvard University back on May 17, 2009, titled “Diminished Returns,” and made the point up front, namely, “The biggest blunder of all [behind the financial meltdown] had nothing to do with deregulation.”

As I see it, the best objection to government regulations and other type of interference with people’s economic activities rests on the fact that free men and women tend, in the main, to be far more competent at managing their own professional affairs than do government bureaucrats and, even more importantly, have every right to do so without others’ intrusive meddling. Call it interference, call it paternalism, or call it nudging, as I understand human community affairs no one has the proper authority to manage the affairs of other people who haven’t invited them to do so and have done nothing to violate anyone’s rights. That this may now and then result in what some folks consider unwelcome–high risks, high or low prices, lack of full employment or complete financial security–is no excuse for the violation of anyone’s rights. It is, in fact, part and parcel of a regime of individual rights that personal errors, even by large groups, will probably be made now and then. But it is far less damaging than the damage caused by governmental intrusions in the free market place.

Now this line of reasoning is out of fashion in our time because it rests on principles that are defended as true. That’s because in our day pragmatism is very popular. As Rahm Emanuel, Mr. Obama’s Chief of Staff put it in an interview in Bloomberg Businessweek (4/26-5/2, 2010, page 41), “Well, he [Obama] is a pragmatist….He is not wedded to a philosophy or ideology.” (But, quite oddly, Mr. Emenuel adds: “[Obama] sees government mainly for setting rules and then letting the private sector operate within those rules.” Oh yes? Utterly dishonest, this remark.)

Anyway, despite being a principled opponent of government interference in people’s lives, economic or otherwise, I do keep my eyes on the arguments made by more empirical minded thinkers and so I welcome Mr. Lowenstein’s contribution in The Times, indicating that my principled stance has the backing of the more research-minded folks.

From Machan Archives–Private Property and Community

Private Property and Human Community Life

Tibor R. Machan

If there is one thing that divides people most on matters of politics it concerns loyalty to the principle of private property rights. You can test this easily enough.
Ask someone to tell you whether he or she thinks a person has exclusive authority over that which he or she owns. Those who say yes will find the scope of governmental authority in our lives to be severely limited, mainly, to the protection of individual rights. Those who do not will consider it quite all right for government to take, take, and take some more, via taxation, eminent domain, and government regulation, for whatever purposes it may have. It makes no difference whether the government is democratic, dictatorial or parliamentary—the central issue is its scope of authority over the lives of its citizens (or its subjects, in some cases). And that depends on how serious the law is about the protection of the right to private property.
One major reason people are not loyal to—or even out and out dismiss as mythical—the principle of the right to private property is that they have a misconception of its main function. Many think only the wealthy benefit from it. And even if they do not have anything against being rich, they do have something against unfair legal advantages for those who are.
All over the map of diverse ideologies this mistake has tended to polarize people. As an example, throughout the legal education community there are very influential teachers—usually members of what is called the “critical legal studies” school of jurisprudence—who hold this view. They think private property rights amount to a legal privilege for the rich, a weapon with which they keep the poor from gaining on them.
This idea, in turn, is fueled by the “zero sum game” mentality, the belief that if someone gains, someone else must lose. Wealth is viewed as a static pile of goods and it just sits there and is dipped into by various folks and if one accepts the principle of private property rights, those who get there first to do the dipping will manage to bar the rest from any chance of enriching themselves. They view the world as such a static pile and cannot fathom any enrichment without at once producing impoverishment.
Yet even such folks—whose ideas are way out of line with reality but somewhat understandable, given their use of the principle of the conservation of mass and energy as a model for understanding political economy—ought to appreciate something vital about private property rights, namely, how it facilitates peaceful diversity in human communities. Just take the example of religion.
In a society in which the right to private property is at least significantly accepted and legally protected, different faiths can flourish because the faithful can gather in distinct places, worship apart from others who gather elsewhere for the same purposes, at any time they choose. Compare this to places around the globe where religion is a public affair and people of different faiths are all battling to become the dominant public religion so they can rule the public square and call the shots as to which conception of God and His ways will prevail for everyone. India, the Middle East, even England are in greater or lesser religious turmoil because of this version of the tragedy of the commons, while in the USA there is noticeable peace at least on that front.
It may appear that this has to do with the US Constitution’s protection of the right to freedom of religion, laid out in the First Amendment, but that right would be impossible to exercise without the corresponding right to private property. And while we are talking about the First Amendment, it is worth noting that the right to freedom of the press—or as it is now more broadly understood, freedom of expression—would also lack any teeth without the principle of the right to private property. Just consider the contrast between the exercise of this right where private property is the rule—in the publication of magazines, newspapers, books, newsletters, paintings, posters, pamphlets and such—versus where public ownership prevails—as in the broadcast industry, radio, television and the like. The former are diverse and full of variety in content, style, level of culture and such, while the latter tend to be pretty bland and undifferentiated.
There is more. In a community that’s at least somewhat loyal to the principle of the right to private property the possibility of cultural diversity itself is far more evident. Not only are there a great variety of religious practices afoot in such communities—about 2500 different religions in the USA—but there are also many life styles, forms of entertainment and sport, with none enjoying substantial legal privileges. (Where there is an exception, as in the cases involving public funding of football or baseball arenas, controversy and acrimony are rife.)
So even apart from the alleged unfair economic benefits to the propertied classes of the right to private property—benefits that are mostly imaginary, since the fierce competition this same principle encourages keeps all participants in the productive sector on their toes—the right is of enormous and widespread benefit throughout human community life.
Still, mainly prominent intellectuals resist it. Recently Professors Liam Murphy and Thomas Nagel have published a book (by Oxford University Press!), titled The Myth of Ownership. The central thesis of this work is that there is no property prior to government saying there is, so taxes do not take from anyone something they own but merely serve as a method for distributing resources that belong to no one. So the ascription of the right to private property rests not on anything objective, pre-legal and real but on political make-believe. (Murphy and Nagel continue the line of thought first articulated by the English Jurist Jeremy Bentham who declared, back in the 18th century, John Locke’s initially very influential idea, that the right to private property is a natural right, that is, it’s grounded firmly in human nature, “nonsense upon stilts,” and more recently by Stephen Holmes and Cass Sunstein, in their book, The Cost of Rights.)
In contrast to Murphy’s and Nagel’s criticism, Bernard Siegan’s Property Rights, From the Magna Carte to the Fourteenth Amendment (Transaction Books, 2002) lays out the history of the idea in Western Law. Siegan doesn’t offer a moral justification of this right but shows that such a justification had been taken as sound for nearly one thousand years. And the early champions of the idea did not see it primarily in economic terms. William of Ockham, for example, regarded natural right “nothing other than a power to conform to right reason,” not unlike Robert Nozick, who took such rights to identify the “moral space” every individual requires in order to make his or her own choices. And natural rights include, of course, property rights since, to quote another famous philosopher, the late comic Myron Cohen, “Everybody’s got to be someplace.”
Significantly, Murphy and Nagel’s is just one more of a very long list of books during the last century that have attacked the right to private property. One should recall that in The Communist Manifesto Karl Marx and Frederick Engels listed it first among the principles that needed to be abolished in order to usher in socialism and, eventually, communism! Since then hundreds and more such attacks have been and continue to be aired, mainly from political philosophers and theorists.
It is, of course, true that the right to ownership does allow for inequality of wealth, but it also threatens all wealth with competition and, thus, even with possible poverty. One need but reflect on how giants of private industry such as Montgomery Ward, Kmart, and, yes, Enron lost their might in the relatively free market, one that does not tolerate mismanagement and corruption very long, in contrast to how state owned industries across the globe manage to hang in there even while crooks run them.
It is too bad that the overall value to human beings of their basic right to private property is so widely and prestigiously denied. It is one of the most beneficent institutions and certainly the bulwark against any kind of tyranny, be it that of a ruling party, a dictatorship or even of a democratic majority.

Column on Corporate Socialism

Corporate Socialism

Tibor R. Machan

The idea that making a profit is somehow ignoble has ancient roots. Partly it stems from the utterly fallacious notion that when someone wins, someone else must lose. So if you go to the mall and purchase a sweater you really like, you must rip off the store where you do this. It is only after modern economics got going full blast that it became clear that when there is a purchase, both sides win. Or at least they understand themselves as having won. You got the sweater, they got the money, you both got a deal!

The myth of the zero-sum exchange, however, continues and politicians and social agitators capitalize on it all the time. So when people in business make profits, the social commentators–advocates of the alleged social responsibility of corporations and business in general–insist they are engaging in illicit exploitation, kind of the way a drug pusher does when selling drugs to a junkie. (Junkies have hardly any will power, so there the idea makes some sense.)

Now this zero-sum idea has been an influential one within the fields of political economy and business ethics. It gives rise to such silly notions as that people doing successful business must “give back to their communities,” as if they had stolen their profits. So every time one is part of an exchange one finds satisfactory, one must have made gains illegitimately and needs to atone for it by “giving back”.

An entire movement has sprung from these ideas. It is called the corporate social responsibility (CSR) movement. It basically advocates that successful people in business have an obligation to do pro bono work in their communities, to do service free of charge, to settle up with the folks there whom they have ripped off. Never mind that all those folks who supposedly were ripped off actually made good deals as they traded with the businesses that are supposed to owe them! Another name for it is “stakeholder corporate management” in line with which managers of companies aren’t supposed to work for the owners and investors and deliver products or services at a good price to costumers so all are pleased with the results. No. Management is supposed to work for the community, for anyone who has his or her hand out for free goodies, for stuff that the business is supposed to pay for, not those to whom the business is providing work on mutually acceptable terms.

So what we have here is the slow but fundamental transformation of a commercial system into a socialist one where profit is demeaned, treated as something evil, and where people must become servants to each other and may not earn a profit from the work they do for others. This isn’t supposed to be something to be expected in an emergency–say when there’s a flood or earthquake–but the norm, the way businesses are supposed to carry on routinely.

We have here the basic idea that men and women aren’t supposed to embark upon good deals through which they can prosper in their lives. No, they are supposed to be part of a huge organism in which everything is shared and no one is ever to be compensated for the work done for someone else. As if everyone were part of one’s family or circle of intimates or even a bee hive. That’s the central idea behind corporate social responsibility once clearly understood, as well as behind socialism.

And now it is getting worse. CSR might be advocated as a voluntary policy by those running businesses. The same with stakeholder management. Though still destructive of business, at least no one is being forced to serve others. But now in several states across the U.S.A.–among them California, Vermont, Maryland and others–politicians have created, by legislation, “benefit corporations” in which managers may proceed to do pro bono work without having to answer to shareholders whose resources are being used for this.

Normally if managers mis-allocate company resources, they could be sued by the owners for malpractice but with this law they will become immune. The only recourse by shareholders will be to sell their stocks and of course these stocks will have lost a goodly portion of their value given that the company isn’t committed to making a profit any longer; nor does the management have to answer to the owners for abandoning this task.

Imagine if one were to hire a doctor to help with one’s medical condition and this doctor decided that during the hour one has set aside to go for a visit several nonpaying patients will come to the office and take up the time one needs to get one’s medical help. Such a doctor–indeed, any professional who is supposed to do work for clients–would be leaving his or her post, breaching his or her oath of office, which is to fulfill the terms of the contract with clients.

I teach classes at a university and my students can count on me to be there for them, given that they have been accepted by my institution on mutually satisfactory terms. But then imagine that I am told by local politicians and bureaucrats that instead of grading their papers, meeting them during office hours, and teaching them during class time, I must provide service to people in the neighborhood and if I do not, I will be in violation of the law!

We are certainly moseying toward a socialist system in which the decisions of professionals and clients are irrelevant and what matters is what the politicians want from us.