Archive for August, 2011

Column on The Keynesian Non-Answer

The Keynesian Non-Answer

Tibor R. Machan

The New Republic editorialized recently about the current economic mess and it is worth quoting it because the central passage is largely non-hyperbolic, non-polemical: “The classic response to [our current economic] situation, put forth by John Maynard Keynes in the 1930s, is for the government to spend money. During the Great Depression and then World War II, the Roosevelt administration and its allies did this in part by employing people directly, an idea that still makes sense even if it’s utterly unfashionable. But there are other ways to prime the pump. Government can invest in public works, whether it’s building roads or fixing up schools. It can put money in the hands of those who will spend it, by increasing public assistance or by targeting temporary tax relief to the poor and middle class. It can also supply money to state and local governments, which because of balanced-budget requirements are busy laying off first-responders, teachers, and other employees—making the unemployment problem worse.”

Notice that of course, the editors simply take it for granted that governments are authorized to engage in this kind of economic regimentation. Never mind that when citizens decide not to spend money they are doing it with what belongs to them and may indeed know what they are doing. But this doesn’t matter to the advisers of master planners. Such moral issues are to them trivial. They think like statists have always thought–what matters for them is only what the king, czar, or some other government aims for.

The history in the passage is wrong. Roosevelt’s Keynesian schemes didn’t work, as it has been shown by numerous economists. (See The Critics of Keynesian Economics [1960] edited by Henry Hazlitt, and Hunger Lewis’s Where Keynes Went Wrong [2009], among many works that critically and mostly dispassionately address Keynesian economics.)

Investing in public works is a complete illusion–most of such spending by government is directed politically; it’s nearly always graft, and what else could it be since government officials haven’t the faintest clue as to what the money they have extorted from the citizenry should be spent on. So the spending will be a response to the pleas of lobbyists and others who can be of help in reelecting the politicians.

Of course, balanced budgets are very rarely implemented. Politicians do not want their hands tied.

The citizens who taxes are extorted could, of course, spend their own funds or invest them or place them in banks that can lend them out all of which would end up employing people for purposes that actually fulfilled what the public wants. Indeed, it is only such spending that amounts to support for public works since the so called public works are nothing but made up projects that serve the agendas of the politicians and bureaucrats. (The editors are evidently unfamiliar with public choice theory for which Professor James Buchanan received his Nobel Prize. The idea is, simply put, that politicians and bureaucrats do not spend on public projects but on what they regard is important. It should also be considered that even those who would try to serve the public interest stumble upon the difficulty of knowing what that might be, seeing that the public is made up of millions of people who have hardly any common interests or objectives.)

I have never managed to appreciate why these people keep assuming that the judgments and actions of government officials are superior to those of the citizenry throughout the world where these Keynesian proposals are being made and followed routinely. I keep asking, “Who are these people whom we can trust with such tasks as running a country’s economic affairs?” Somehow thousands of intellectuals who would never entrust government with tasks such as censoring literature and newspapers nevertheless have no compunction about entrusting them with the very delicate and idiosyncratic tasks of directing people’s economic affairs. (I tend to think it is the ancient governmental habit, left over from feudal times.)

Column on The Anatomy of bona fide Compromise

Anatomy of the bona fide Compromise

Tibor R. Machan

On the current political front there is a lot of talk about whether to compromise on various issues, such as continuing or increasing the Keynesian economic stimulus, abortion, gay marriage, extending the debt ceiling, continuing the two–or is it three–wars America is involved in abroad, getting tough on illegal immigration, how to treat radical Muslims in the courts, etc., etc. The president’s stance, peculiarly, is urging compromise on all fronts and not sticking to any firm position based on principle but entering the discussion with a middle-of-the-road outlook.

Yet there is something basically amiss with Mr. Obama’s position and indeed with that of all those who insist that there is great virtue in compromise. The main problem is that a compromise is the outcome of discussions between those with basically different positions. So, for example, if you hold that injecting more stimulus into the American economy is a good idea and I believe that it is not, we might compromise by agreeing in the end that a bit of stimulus will be injected but not as much as promoters of the idea hope for. Thus, to take a concrete case, if Paul Krugmann of Princeton University and The New York Times believes that the government should inject massive amounts of fiat money into the economy, via public works and subsidies, and various make-work projects–one’s the free market would not fund but government officials believe might generate employment–and another economist, say Don Boudreaux of George Mason University and The Pittsburgh Tribune Review, argues for avoiding any policy of printing and spending any kind of fiat money to stimulate employment, the result of spending a modest amount of such fiat money might be a compromise.

Notice that in such a case the two sides did not enter the discussion with what the result turned out to be. Compromises, in short, are what come out of debates between people discussing what kind of public policy should be adopted. Just as the middle between two points is something that cannot be established without knowing where the beginning and the end lie, so a compromise is dependent on positions that aren’t themselves the results of compromises.

Anyone who argues like President Obama–and his cheerleaders such as CNN commentator Fareed Zakaria–that what is needed on all sides is more willingness to compromise haven’t a clear idea what a compromise is. If they did, they would start by laying out the two sides that they urge to reach a compromise and indicating what would it be given the base positions of the two sides. What is it, for example, that Krugmann and Boudreaux really want and then why should they give up their commitment to that position and go along with something else, namely, the proposed compromise the likes of Zakaria propose?

The bottom line is that in any important debate one rationally demand of the debaters that they compromise prior to the process that must preceded it, namely, the debate. Maybe in the debate one side will manage to demonstrate to the other that it’s position is better that the opposition’s. In principle this has to be a possibility. But if one starts with demanding that people who enter such debates start with compromises, one is asking for the impossible. After all, the reason people tend to have firm positions is that they believe them to be sound, to be the right solutions to problems. But because the problem faces groups of people who must come to some kind of common resolution, it is likely that they will not be able to succeed with having their firm positions accepted by all parties to the debate. So what is sensible to ask for is that everyone involved in the discussions will go slow and only accept changes if they see no other way to proceed. To put it differently, the result of a compromise is never desired by those debating issues. These results are grudgingly accepted at best and imply that neither side was successful in convincing the other of the soundness of its stance.

Bottom line is: Don’t urge people to compromise; urge them to debate seriously and intelligently. The resulting compromise will then be the best and only one that could be achieved among these people who have to make collective decisions.

From Machan’s Archives: The Big Corporations Excuse

The Big Corporations Excuse

Tibor R. Machan

Anytime I mention to someone from the Left that I consider the scope of government way beyond justice and prudence, I am likely to be told that it is big corporations that make this necessary. And, furthermore, I couldn’t really favor liberty for all if I don’t see corporations as a threat and in desperate need of being reigned in.

So far as I understand it, corporations are just large groups of people who have hired some experts in management aiming to achieve some goal they couldn’t achieve on their own, like grow the company, make it seriously prosper. So long as they do this peacefully, without using coercion to get ahead, I see nothing wrong happening. Size is no problem. This is evident in how we deal with people–some are tiny, some medium sized, some huge but they can all get along fine if no one resorts of violence. And if some big fellow comes off intimidating, a few smaller ones can surely contain him–or her, for that matter.

What then is the big problem with corporations? As far as my Leftist pals would have it, they can wield economic power. But what’s that? They can buy stuff, expand their commercial reach, and flourish, yes, but not without first pleasing their customers. And that means they can only get ahead if they serve others in helping them do the same.

Yet there is one area where corporations can be a threat to liberty, justice, and other fine things. This is where they get into bed with governments. Only if governments are strictly limited in their scope of authority, in what sorts of things they are legally authorized to do, can this be avoided. If governments may yield to public pressure to undertake various tasks like giving subsidies, bailing out failing companies, restrict foreign trade, and so forth, this will invite business corporations to seek or lobby for their help. And there is only so much help governments can give, so those who will get it will have an unfair advantage and will also be able to wield influence and political power.

This is where the trouble with corporations arises, although various other associations can gain similar favors from government, such as unions or large professional groups. What is the answer?

There are those who say nothing can help but giving government the countervailing power which will keep corporations in check. I have never found that a convincing solution. After all, usually the problem is government and corporations (or some other group) getting into bed together and running roughshod over others. (This is that famous process euphemistically called wealth redistribution and commonly advocated, naively, as a means by which the unfortunate will be helped but which in fact involves a lot of what economists call rent-seeking, taking from Peter and providing for Paul.)

Column on Krugmann’s Failed Analogy

Krugmann’s Failed Analogy

Tibor R. Machan

Ok, so I’ll give him this: finally Dr. Krugmann put forth something akin to an argument instead of merely demonizing those with whom he disagrees! (See his column, The Hijacked Crisis, The New York Times, August 11, 2011.) The argument, however, is an analogy and as with many analogies, it fails to be an apt one.

Krugmann tells us that suggesting that what the US government should do is significantly cut back on spending is misguided because the economy is in need of immediate and drastic emergency treatment. Like a man who is bleeding profusely, this is not the time to counsel greater prudence and preventive treatment. What it needs is the infusion of massive doses of blood, as some patients require blood transfusions so as to save them from imminent death. We may assume, then, that once the infusion has done its job, the long term remedy of cutting spending can get under way. As he wrote recently, “For the fact is that right now the economy desperately needs a short-run fix. When you’re bleeding profusely from an open wound, you want a doctor who binds that wound up, not a doctor who lectures you on the importance of maintaining a healthy lifestyle as you get older. When millions of willing and able workers are unemployed, and economic potential is going to waste to the tune of almost $1 trillion a year, you want policy makers who work on a fast recovery, not people who lecture you on the need for long-run fiscal sustainability. … What would a real response to our problems involve? First of all, it would involve more, not less, government spending.”

Looks like a good piece of advice initially, but it misses the mark. The economy, first of all, isn’t some biological system. (And Krugmann has never ever conceded that spending cuts are needed, ever! Government must always spend and thus stimulate the economy.) As to the first point, the government’s taking massive amounts of money from people so as to spend it on “public” works, as per the priorities of government officials and their advisers, doesn’t constitute an emergency measure but only a change of who will do the stimulation. Instead of having the citizenry spend its labor and resources on what it chooses to spend it on, it will be government officials–politicians and bureaucrats–who will do so.

Even if the analogy had some promise, there is no reason to believe that these officials are going to spend our labor and funds on projects that will stimulate anything, certainly nothing that will do so better than were the citizens themselves to spend their own labor and resources as they see fit. If anything, when government takes over what by right we should be doing, they are far more likely to misspend than we would. You and I have some pretty good idea as to what we need to spend our funds on, whereas those in government are at best getting their priorities via the political process which very likely distorts the feedback system that informs the economy about what is most important to invest in, to spend on. Worse than that, they actually get it from their own imagination and fantasy, as when they want to build huge dams or highways where they are not at all needed.

The radical remedy Krugmann favors could well work in the case of a human individual, a biological entity whose medical needs can be ascertained by most physicians. But when it comes to an economy such as that of the USA, wherein the “demands” of the citizenry are inordinately diverse and can, thus, be best assessed locally, not by planners from Washington or even state capitols, doing the kind of stimulus Krugmann favors is just impossible (a la Hayek’s good teachings). Which is why the stimulus didn’t work before and isn’t working now.

So, yes we finally have something of an argument from Paul Krugmann. But it involves a misguided analogy. Individual human organisms are one thing; economic systems of a huge country another entirely. So what he attempts to derive from his analogy is in fact a colossal non-sequitor. It doesn’t follow and never has.

Column on Further Distorions of Libertarianism

Further Distortions of Libertarianism

Tibor R. Machan

In his essay “The Tea Party Jacobins,” with its hyperbolic and besmirching title, Mark Lilla, whose The Reckless Minds: Intellectuals in Politics I once favorably reviewed, advances the notion that the Tea Party’s “libertarian irruptions … [attracted] individuals convinced that they can do everything themselves if they are only left alone.”

I am reminded of this point by Andrew Hacker’s essay “The Next Election: The Surprising Reality,” in The New York Review of Books (August 18, 2011), which quotes Lilla favorably. But check this: Libertarians demonstrably do not believe what Lilla claims they do. Libertarians aren’t “convinced that they can do everything themselves if they are only left alone.” What they believe, instead, is that free men and women can do things much better than bureaucrats and politicians, mostly in voluntary associations. Teams, orchestras, clubs, corporations, choirs, and many other such associations aren’t “individuals convinced that they can do everything themselves.” No libertarian I have every known–and I have known a great many, having edited one of the first collection of essays by libertarians for Nelson-Hall Publishers of Chicago back in 1973 (The Libertarian Alternative)–is convinced of such an idiotic idea. None want to do things “themselves.” What they want is not to be coerced into associations to which they may object, especially by the government. They don’t believe people ought to be forced to contribute to social security, medicate, and similar programs not of their own choosing. It is a complete non-sequitor to hold that this means they want to do things by themselves.

Comments like those by Lilla suggest to me that critics of libertarianism are running very low on bona fide objections to the position. Instead they need to make it appear that the libertarian positions embraces ideas that it clearly does not embrace or even remotely implies. Only that way can they come of up with criticisms of it.

This has been going on for centuries, actually. For example, Marx argued that individualists, the libertarians of yesteryear, think they are self-sufficient and defend the right to private property so as to make use of what they own arbitrarily and selfishly. As he put it, “the right of man to property is the right to enjoy his possessions and dispose of the same arbitrarily, without regard for other men, independently from society, the right of selfishness.” This line of criticism, along with the charge that free market advocates believe in atomistic individualism, has been repeated over and over again, not just by the Left but also by the Right. And it is bunk.

In fact, the main thing that the right to private property secures is the individual’s liberty to choose how to dispose of his or her labor or resources. It is this choice that bothers the critics who all contend that they, not you or I, can decided best how we ought to use our labor and goods. Indeed, under socialism your and my labor is public property and to be allocated as the party leaders decide because they have the requisite knowledge, something you and I supposedly lack. (Why they but not we is an unanswered question!)

Anyway, Lilla and his ilk just don’t want to deal with the bona fide libertarian viewpoint. They need the nonsense they impute to libertarians so as to make the position appear ridiculous. But contrary to what they suggest, it is not at all ridiculous. It does not hold that people are all isolated atoms who believe they can fend for themselves, all alone. No sane person believes this. But once you allege that some people do, they can be dismissed as nut cases, which is just what it seems Lilla & Co. would like to do with the Tea Party folks. One cannot help thinking that what these critics are after isn’t to get it right about politics and economics but to secure for themselves the exclusive authority to call the shots for everyone.