Posts tagged James Buchanan

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 Krugman’s Trashy Debating Style

Krugman’s Trashy Debating Style

Tibor R. Machan

Looks like critics of the free market are at their whit’s end. At least one of the most prominent of them clearly appears to be.

Princeton economics professor and columnist for The New York Times Paul Krugman has always been discourteous to those with whom he disagrees but his latest exhibition of his way of going about debating issues takes the cake. It used to be that he would call everyone who finds even the slightest merit in free market economic theory a “market fundamentalist,” suggesting thereby that such folks are, like all fundamentalists, mindless in their convictions and merely blindly follow some sacred text or book of instructions. Besides wishing to score points for his statist economic politics by smearing the ideas and methods of his intellectual adversaries, he also regularly distorts the scholarly lay of the land by claiming that America is in the grip of such fundamentalism. This basically meant that throughout the academic landscape departments of economics are filled by people who hold and teach views similar to those held by the late Milton Friedman, F. A. Hayek and Ludwig von Mises (among others).

While these thinkers did consider the free market superior to its statist alternatives–ones that give a decisive role to government intervention in the lives and activities of market agents–they did not, of course, hold identical views. Nonetheless, Krugman lumps them all as fundamentalists. Moreover, he rarely takes on living supporters of the free market, such as James Buchanan or Gary Becker, not to mention such current members of the Austrian School as NYU’s Israel Kirzner. Might we suppose that he doesn’t wish to engage anyone in a dialogue about economic policy but merely discredit them once they could not respond? (Just after Milton Friedman died, he and his frequent co-author Robin Wells penned an extensive and it turns out demonstrably inaccurate essay on Friedman for The New York Review of Books.) Also, despite Krugman’s allegation, there is plainly no dominance of free market thinking in American universities. Mainstream economists are mostly followers of such notables as Paul Samuelson and, of course, John Maynard Keynes, with quite a few who are influenced by the political economics of welfare statism. At the universities where I have taught throughout the last 40 plus years, economists may have been respectful toward free market theorists but were by no means fully in line with their views. So even in this elementary matter, Krugman has it wrong.

But the claim that the country is in the grips of market fundamentalism is also mistaken if it’s meant to apply to official public policies bearing on economic matters. Just for starters, the financial market place has been heavily regulated for over a hundred years–consistent free market theorists usually don’t favor a central bank such as the country’s Federal Reserve Bank (even though, somewhat paradoxically, Alan Greenspan had been such a consistent free market thinker before he was selected to head up the Fed). Furthermore, the plethora of government regulation of various elements of the economy, including virtually all professions (apart from the clergy, journalism, and writers of all stripes who are protected against such regulation by the First Amendment of the U. S. Constitution), is decisive evidence that free market thinking does not dominate public policy in America.

Yet, despite all this, here is a Nobel Laureate and professor from a most prestigious academic institution and columnist for a most distinguished newspaper who keeps trying to distort reality. Why? But I will not speculate, again. Who knows what Krugman’s agenda is.

One thing does clearly stand out in his approach to making a case for more and more government involvement in the economy. This is that he relies extensively on name calling, on besmirching those with whom he disagrees. In a recent column he went so far as to dismiss all those who hold views opposed to his as zombies! Yes, zombies. That means that people, some very distinguished scholars, who are convinced that a public policy of laissez-faire when it comes to a country’s economic affairs is best are all mindless. They do not merely think mistakenly but cannot think at all.

When a critic of a position needs to resort to this kind of technique with which to attract readers of his missives to his own outlook, it suggests that the intellectual merits of that position are truly hopeless. And that is precisely so. Statism in economics has for a long time been proven and shown to be utterly unsupportable, be this the Draconian sort one found in Soviet Russia and finds in North Korea or the less drastic kind that has just produced the worldwide financial meltdown, namely the more or less interventionist welfare state.

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?

Machan Archives: Adoration of Regulation

Adoration of Government Regulation

Tibor R. Machan

On a recent Monday I went to hear a talk by Professor James K. Galbraith, author of the free market-bashing book, Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too. The talk repeated what so many modern liberals have been saying about the current financial fiasco, namely, that it’s all due to the free market, to the late Milton Friedman’s influence, and that deregulation is mostly to blame.

This is not especially novel, given that nearly everything wrong with America is blamed by such modern liberals on, well, the absence of sufficient modern liberalism in the country’s governance. Why not? Champions of the free market make similar claims when trouble arises—modern liberalism is to blame. And I am often among the latter group. I admit—I am much more favorably disposed toward the principles of a fully free society than toward those of a mixed economy (or even fiercer government involvement in the economy).

Let me spend a line or two explaining why I find the hosannas sung to government regulation by the likes of Professor Galbraith so bizarre. First, government regulators are people, no different from those whom they set out to regulate. Second, governments make use of physical force or its threat in order to achieve their goals, while the free market relies on voluntary interaction by market agents. Third, government regulators lack the restraints that market agents face when they carry out their plans in the market place—namely, the need to earn their resources from willing lenders or buyers. Governments can raise their resources through taxation which is collected whether those paying it chose to pay or not. Fourth, government regulators tend to be far removed from the firms and people they regulate, relying on vague, general information instead of local knowledge that market agents use as they make their decisions.

Other differences exists that, in my view, clearly favor market processes as against government regulation—public choice theory (for which Professor James Buchanan received the Nobel Prize and which was left totally out of consideration by Professor Galbraith in his talk), explains them very well. But let me focus on one particular point made by Professor Galbraith in his support of extensive government regulation. He noted that people in the People’s Republic of China prefer buying goods from America because American goods are produced with the benefit of government regulation. So they can be trusted, while those in regions around the globe that lack government regulation are untrustworthy.

This is what is called in logic a non-sequitor because the conclusion does not follow from the premises. Chinese may buy American goods but that could be for innumerable reasons other than that government regulates the production processes. Generally American production has a very favorable reputation around the globe. Yes, American goods tend to cost more but that’s because American labor and management is more expensive than labor and management elsewhere. However, one tends to get what one pays for, namely, pretty good products.

American technology is far more advanced than technology elsewhere, which also contributes to the higher quality of American goods. Science and technology in America is top of the line—just count the number of American scientists who have won the Nobel Prize and consider how many foreigners come to study at American technical universities such as MIT and Cal Tech.

Furthermore, even if some of the confidence in American products stems from the fact that there is government regulation in America, it doesn’t follow that government regulation is indispensable. There are plenty of scholars who have found egregious flaws in the regulatory process, such as the slowing down of drugs coming on the market because of irrational rules imposed by the Food and Drug Administration, the capture of regulator agencies by the very firms they are supposed to regulate impartially, etc.

In addition, and very importantly, Professor J. C. Smith’s “The Processes of Adjudication and Regulation, A Comparison,” published in a book I helped edit, Rights and Regulation, Ethical, Political, and Economic Issues (Pacific Institute for Public Policy Research, 1983) lays out the case in favor of changing from government regulation to legal adjudication where now the former is deemed to be necessary.

Finally, there is a fundamental injustice involved in most government regulation. This is prior restraint. Burdens are imposed on citizens who are being subjected to government regulation without it having been demonstrated (in court) that these burdens are deserved. This amounts to treating citizens as if they had been convicted of a crime whereas, in fact, all that can be held against them is that they might possibly do something wrong, injurious, harmful to someone. If the criminal law operated this way we would all be in jail.

The adoration of government regulation is misplaced and belongs with the ancient practice of deference to the monarch who was deemed to be superior in wisdom and virtue to ordinary “subjects.” This habit should be tossed. Free men and women deserve better.