For those of you who’ve stuck with me so far, thanks, and give yourselves an “attaboy.”
Tom should be home or almost home and resting up from the Low Carb Cruise. Looking forward to his report, but he tipped me off that there were some problems with the audio of his roast of the featured speakers. He was huddling up with Jimmy Moore, who also recorded some of it, to see if he can get a good cut for us landlubbers. Keep your fingers crossed.
I wanted to wrap up my run through the weeds with some thoughts on how these economic principles I’ve outlined impact our health and the foods we eat, and what you can do about it.
First let’s look at the biggest common fallacy of both Big Government economics and food policy. It’s what FA Hayek called “The Fatal Conceit.” That’s the assumption that in order to manage an economy (or food policy) full of imperfect human beings, who may or may not have any idea of what they’re doing; said human beings’ best bet is to cede control of all of those individual decisions over to a small group of elected or appointed imperfect human beings; who are educated and credentialed, but in fact may or may not have any idea of what they’re doing.
Along with this hubris comes the implicit assumption that once dipped in the cleansing baptismal font of “public service,” these superior beings will acquire instant and complete immunity from such things as greed, conflict of interest, failure of imagination, peer pressure, careerism, etc., etc. All traits not of, as commonly ascribed, “the market,” or “the one percent,” or “Darwinian capitalism,” but of human beings.
The economy is no more a collection of mathematically definable variables and decisions than a pasture is a collection of nitrogen, phosphorous, and potassium, along with some dirt and a few bugs. They are both “organic,” with literally billions of interactions occurring at any moment. Any single change or new input sets off an exponential number of adjustments, adaptations, changes. The larger and less natural the change, the more unpredictable and unhealthy those changes are likely to be, because you have just introduced artificial change into a system that was balanced and self-correcting.
Even given this Fatal Conceit, we could still at least assume people mean well, but you don’t have to look far to conclude that some (much?) of what our authorities does seems downright venal. Swat teams invading Amish stores to destroy raw milk. Schools traumatizing youngsters by confiscating their peanut butter sandwiches and making them eat chicken nuggets. The USDA increasing its buy of Pink Slime once fast food outlets dropped it. Monsanto getting cover to sue farmers whose corn fields get compromised with its GMO crops. Could this be just a few mistakes, or is this the nature of government as is grows?
Another of Hayek’s observations was covered in a whole chapter of “The Road to Serfdom” titled “Why the Worst Get on Top.” Always.
Understand that, no matter what the original intention, a law or regulatory function is a government enforceable edict to compel or prohibit transactions, or to direct resources from one group to another. Although this type of power is always sold as the solution to some perceived problem, injustice, or threat, at base it’s a tool that overrides what would happen in a marketplace of individuals making free-will decisions.
Who can maximize the use of this new power? Perhaps some well-meaning people first proposed it to address some perceived problem or injustice the market wasn’t addressing quickly or visibly enough. But they won’t take “immoral” advantage beyond addressing their original grievance. Perhaps clean food, or healthy meals for kids. But someone with less noble intentions will recognize real value here. This is the power to direct money and resources towards yourself; to inhibit competition; to force transactions on unwilling consumers. Again, who will work hardest to acquire this kind of power? Who will lobby harder? Who will fund “research?” Who will bribe? Who will extend “corporate support?” The well-meaning reformer? Or Big Business, Big Ag, Big Pharma, Big Government, Big Oil?
So what?
So this — you cannot have a simple answer in a complex system. So if you find yourself saying “the government ought to…” or “there ought to be a law that…,” first ask yourself if you’re perhaps feeling a bit conceited.
If you’ve been following this blog for awhile, you know that as much as us Fat Heads despise the government pushing the Low Fat, High Carb, Eat Less, Exercise More paradigm, most of us also (Tom has stated this emphatically) don’t consider the solution as being for the same government to instead push High Fat, Low Carb. The solution is to let people pursue their own personal answers, then adapt to their own results.
Also, when you look at the universe of Big Government — the USDA and Energy and the FDA and HHS and Education and on and on, please consider that you are dealing with an organism that is incapable of not being owned by the sources of the problems they supposedly exist to mitigate or protect us from. It has nothing to do with which party is in or who’s president or which experts are running what department. It has to do with real economics, reflected in the title of Ludwig von Mises seminal book of the Austrian School of Economics — “Human Action.”
So, if someone is billed as an expert, assume they’re lying. Try to take their argument apart, a la “Science for Smart People,” then decide if it holds up.
Let me come back to one of the points of my original post. The extent to which the government has inserted itself into the food markets and nutritional debate means that it’s hard to find good information. The price of those strawberries at the megamart don’t convey how or how much their journey from South America was taxpayer subsidized. So instead of them saying “maybe you should just eat what’s in season locally” or “if you want us that badly, okay, but that’s why we cost twice as much,” they’re saying “growing food with less nutritional value using massive amounts nonrenewable resource inputs, and then using other resources to ship them half way around the globe — GREAT IDEA! I mean, how could I lie to you — just look at my price.”
So, we know the “price mechanism” — which is the best, most efficient way to convey the sum of the relative values of all inputs in a free market — is hopelessly compromised.
But if you don’t know the real value of your food, you don’t know much of real value. I suggested a little bit of basic market research in Part II. It’s Spring here, and if you’ve got a local food outlet (ours starts this week!), get out there. See what real food costs when you’re paying real money. I’m not saying to buy all of your meat or veggies at the farmer’s market if your budget doesn’t justify it. I am suggesting that by patronizing the folks who are working the dirt, even for a few tomatoes, or a bundle of herbs, or a pound of grass fed beef, you’ll gain valuable awareness.
I think it’s likely that we’ll be going the way of Greece sooner rather than later. Whether through honest downsizing, controlled crash landing, or some degree of collapse, a lot of those subsidies could get tossed. It would be good to be aware of what your food is going to cost when those lyin’ strawberries have to fess up. It would be even better to have a good relationship with some of those local folks who use mostly sweat and sunshine to grow food, because they could become very popular. I just got a half-share this year of a local CSA (Community Supported Agriculture), which keeps costs competitive with the megamart.
Okay, you’ve humored me long enough. I’ll wrap it up.
Ultimately, you’re not going to have a realistic understanding of the power, capabilities, and limitations of government (and human beings); how that will affect your food, your career, your family — without a grasp of some fundamental economic concepts. Like your friendly neighborhood establishment nutritionist, good intentions are completely overrated as a virtue when ignorance is causing real damage. And like with all experts, none of them can care more about your money, your kids, or your health as much as you can.
Hope I’ve given you food for thought about our food. See you in the comments.
Cheers!
The Older Brother
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A completely useless diatribe on the free market could only come from a privileged, white male. I’m glad that it’s over, because it was absolutely unproductive. Tom, please don’t subject us to any more of this crap from your brother (or yourself).
While I owe you for starting me on my weight loss journey via your movie, I can’t help but be thankful that I was able to make it through your libertarian nonsense, without throwing up (You’re basically saying minorities are free to shop at Whole Foods, if they only just wanted to? Give me a break!). I almost turned it off before you got to the actual positive message of health and science!
There is a huge population of progressive Americans (including myself and the majority of my friends) who will be completely turned off by your anti-government bias. You’re doing yourself (and the low carb movement) a huge disservice by alienating them through your politics. Instead of dividing people, why not be constructive and bring everyone together? Or at the very least, stop getting in the way of positive public policy changes.
Our government was misguided and put out nutritional guidelines that ultimately made us fat, sure. But, that doesn’t mean that government doesn’t work. In fact, we might not be here, having this conversation, had our government adopted LCHF guidelines, back in the day.
In other words, it’s easy to blame the government on the issue of health, because they got it wrong. Instead of taking that as a sign that government doesn’t work, it should instead tell you that government *does* work, and that it only needs better guidance. People like Robert Lustig should be applauded, not reviled, for their attempts at public policy change.
I’d have to say that I am in fact a privileged white male. The reason I got that way was because our parents, who weren’t privileged, had the opportunity to strive for success (and risk failure) without constant interference from a massive, overbearing government that’s $16 trillion beyond sanity and growing. But on my best day, I’d be flattered if someone told me one of my diatribes would compare favorably with something a couple of my heroes — Walter Williams or Thomas Sowell — have written. But they’re both black, so apparently some non-whites have gotten the hang of it. Mystery.
I’ve never been in a Whole Foods, so I’m not sure what you’re minority reference means, but I was under the impression that if minorities did in fact want to shop there, that would be okay with the Whole Foods folks.
Perhaps you could list a few of those positive public policy changes your progressive friends are responsible for so I could give proper thanks. We obviously agree that the government was misguided and put out nutritional advice that ultimately made us fat, and that they got the “issue of health” wrong.
Where we seem to have a disagreement is when, on both of us observing this massive thrust by government into an area it had never overtly meddled in, and then ignored its own experts, and then got everything almost exactly wrong, and then ignored mounting evidence of not just failure to improve, but of its meddling causing an explosion of negative outcomes — for forty years — with never even a hint of acknowledging that it may be wrong; you then state with progressive certitude that all of this tells us that government *does* work. That makes my brain hurt.
Here’s the thing — we were destined to be having this conversation because the government never would’ve adopted LCHF back in the day. There’s no money in it.
A free market economyGovernment couldn’t help vested interests create Big Pastured Beef, or Big Raw Milk, or Big Local In Season Fruits and Vegetables, or Big Have an Aspirin and Step Away From the Statins. They don’t scale. The most efficient model for those is you across the table from your vendor, or maybe a bunch of them form a cooperative, or a grocer works with them. There’s nowhere to concentrate the privilege and pick winners and losers, so there’s no role for government.I also find your implication that Dr. Lustig is reviled and not applauded here simply bizarre. Tom’s recommended and put up links to several of his works, including his most recent YouTube series.
So here we are, 50 years on and counting from the onset of progressive nirvana. We’re diabetic, obese, demented, bankrupt, at war around the world, jack-booted thugs poison the raw milk of peaceful Amish farmers, American citizens need permission from the government to sell each other canned peaches, we’re hypertensive, celiac, asthmatic, we’ve got wars on drugs, wars on poverty, wars on illiteracy, and today the FAA announced it’s promulgating guidelines for the drones that will soon be monitoring American citizens.
None of which is surprising, if you understand real economics. It’s just like that pasture I mentioned — an organic system. It’s balanced and has indescribably complex systems to repair damage and adapt to change. To think you can arbitrarily come in and radically change its nature by use of massive artificial inputs, despite some observable short-term gain, is to create the mechanism for its destruction. Those things in the above paragraph are some of those inputs and natural consequences.
In the end, given enough of those inputs over a long enough time, the organism’s ability to cope is overwhelmed and it dies. The pasture collapses into desertification, a dust bowl.
Here’s the thing I don’t understand. How come Progressives are all zealous about evolution — until it happens to them?
Sorry if you hurled.
Cheers!
I’ve stayed out of the comments on the other installments, because IMO you fall into easy strawman arguments when describing the views of those you disagree with. However … I believe dietary tribalism does more harm than good. My agreement with you about the problems with Big Ag is more important than my disagreement with you about economics.
The food system, like all big systems, now exists for the good of the system itself.
I noticed you hadn’t chimed in. Figured either you were on the cruise or I’d put you to sleep.
You’ll have to help me out with examples of my straw man arguments. I try to just let other folks bring theirs to the party, but I have to admit, this round of comments had me thinking pretty hard. Illustrations of points where I may have gotten lazy cheerfully considered.
If we agree that all big systems exist for the good of the system, our disagreements probably aren’t fundamental.
Cheers!
Right here:
I don’t see anyone suggesting that public servants are immune to greed.
If I had to state the position of those who support government actions, I’d say that because government is necessarily made up of imperfect people, the system requires checks and balances to prevent the accumulation of too much power in too few hands. That’s different from saying effective governance is impossible.
Fair enough. Immune may be too strong, but would you agree that those human failings are assumed when talking about greedy one-percenters, but discounted when discussing the people who are allegedly protecting us from them?
And if I’ll agree that effective governance is not impossible, will you agree that its effectiveness is certainly limited to a much lesser scope thanmost people assume it can operate in?
The financial industry, for example, had regulators, auditors, and oversight agencies crawling over them before the meltdown. Then comes stage one of the reckoning and we get the monstrous Frank-Dodd bill creating an even more byzantine web of new regulations, departments, and entire government agencies. So how’s that working out for us? Well, JP Morgan Chase just blew $2 billion in a month, on a bet. Right in front of all those regulators. Meanwhile, small banks, credit unions, brokers, and other financial providers who know their customers but can’t afford the endless cost and distraction of escalating compliance requirements, are folding up, leaving the “too big to fail” boys to divvy up the spoils.
Cheers!
By the way, my single word post of, “exactly.” was in direct response to Jerry’s last line of his response to Drew…if it ever gets posted. It was not in response to Claudio.
I didn’t see that post, bigmyc. Here you go. I think I may still owe you a response on one you left on one of the other parts. I let some of the ones I thought needed a bit deeper consideration lag a bit. Thanks for the feedback.
–The Older Brother
This thread is great because of it’s high level of focus. I just wanna say that Jerry, your response to Claudio was a well developed and thorough one in that you sewed it up nicely with classic logic in regards to progressives and evolution. It’s the inconsistency of progressives that always seem to undermine their efforts, IMO. I’m never that guy who assumes the position of “moderator”, in fact, I deplore that type of character. However, there are times that I am compelled to say, “bravo” when it comes to critical thinking exercises.
Also, I must give both you and Drew just props on seemingly settling the straw man issue. I thought the straw man accusation (which I agree with) was nicely equalized by your statement regarding the end result of government bureaucracy even under admittedly benign intentions (which I also agree with).
I think, what perhaps many of us are getting at is the conspicuous lack of accountability in the affairs relating to government and big biz. Your example of J.P. Morgan’s bad behavior couldn’t be more poignant but where we really fail as an economy and a nation in this contemporary era is in the arena of culpability. It’s one thing to have checks and balances upon checks and balances but what really comes of any of it when the checks don’t balance anything? Obama said in reference to claims that AIG fat cats were still paying themselves 10 million dollar bonuses despite recently procuring billions of tax payer bail out money, “That just shows me that ‘they’ haven’t gotten it.” Right you are, Mr. President…so, um, like whadya plan to do about that?
Oh, they’ve “gotten it alright.” That’s exactly the point of their further reprehensible behavior…they know that this government and by extension, this culture is impotent to hold them to task. Same thing with this pink slime deal. Monsanto hides in broad daylight. J.P. Morgan? No surprise there. Again, the failings and folly of government is bad enough but ultimately, the solution lies at the feet of the populi. It’s a shame that our motivation to educate ourselves on our environment pales in comparison to our desire to find out who won the most recent “American Idol.”
American Idle, indeed.
Well, I think I least partially accomplished my goal of just trying to get people thinking in terms of what government, comprised of human beings, subject to the sames passions and preferences and limitations of other human beings, can realistically accomplish.
I have no doubts about Claudio’s sincerity or intentions. FA Hayek, as I mentioned elsewhere, dedicated his classic “Road tho Serfdom” to “the socialists of all parties.” He was not being snide or tongue-in-cheek or ironic. He was making a sincere plea to his peers and contemporaries to understand the tools of government power that, once created, would be eagerly sought and controlled by people of far less good will.
The whole financial meltdown was predictable and inevitable given the rules — the economics — of the game. Rewards and corporates bonuses flowed to the Bigs when their bets paid off, catastrophic losses got fobbed onto the taxpayers when they didn’t. All of those regulators and inspectors and auditors not only didn’t have a clue what they were looking at, but their presence gave the false impression that the system was safe. The “reforms” have guaranteed that there will be an even bigger, more catastrophic meltdown later. Or sooner.
Cheers
Well, *I* thought you hit it out of the ballpark, Older Brother! (But then, *I* have some knowledge of economics!!) If I believed in god, I’d ask him to rescue me from progressives who think the govt — made up of many, many people advanced well beyond their knowledge and abilities and just awaitin’ for the retirement fairy to take care of them — can help any of us!!
Thanks. Might not hurt to ask anyway.
Cheers
What I’d like to see: a system where the busybodies and the people who want to be taken care of can get together and leave the rest of us alone.
I have a half-baked rant (don’t worry folks, I’ll put it on my blog, not here!) based on the idea that, as all of the usual gasbags are always lecturing us on how
“every dollar ‘invested’ in __________ (fill in blank here, i.e., ‘early childhood intervention’) returns eight dollars in savings” blah blah blah….
Anyway, my modest proposal is to take all of Congress’ and state workers’ and unions’ and the sundry and multitudinous government funded do-gooder folks’ pension funds and invest them in those programs, then leave the rest of us alone. They get to bank all of those exorbitant savings, and we get our liberty back.
Everyone wins.
Cheers
Aaaand that’s why I stayed out of it. 🙂 I have other forums that I go to when I want to argue economics and politics. I come here to talk food and, because it affects the food I’m able to buy, food policy.
I still disagree with some of what you’re saying, but again, that isn’t as important as the fact that the current subsidy system is broken. Getting people to see and understand that brokenness is something I think we can do. Fixing the whole concept of government? I’m staying out of that one.
You’re probably on to something. Dad used to remind us that “discretion is the better part of valor.” Or maybe more apropos, “fools rush in…”
Cheers
I’m a regular reader, but not don’t regularly comment here…
Two of my interests are economics and health. And I am a libertarian. So- I really enjoyed these posts. However, I must admit the first post nearly put me asleep. I struggled through it. The second post was a homerun. A few things here and there that could have been written better, but still a homerun. This post is good as well…
I already understand the principles you wrote about, so I got it. However, if I didn’t read “Economics in One Lesson” or other great economic books…or watch countless speeches by Peter Schiff and Tom Woods… I doubt I would have gotten your point. Of course, I haven’t read through all the comments- so it’s possible you did a better job there.
The below quote is clear, concise and one of the reasons I enjoyed you taking over for Tom during his vacation. Please fill in again sometime!
“The solution is to let people pursue their own personal answers, then adapt to their own results.”
Well, that’s two known folks I put to sleep. Lord knows how many are still passed out over their monitors. I actually thought the “finale” was the weakest of the three parts.
I’ll likely get to fill in again, but I’ll probably have to promise Tom to keep my inner economics nerd in the background.
Cheers
Cheers
I’m tempted to ask a question. It may sound naive or worse ignorant.
How much does the US Govt spend on food subsidies? By food subsidies I mean the total subsidies received by the agricultural sector.
And a second question.
Would the answer to this question shock the American public sufficiently, forcing the Govt. to change it’s protectionist policies allowing the land of the free to function with freedom.
And another.
What would happen to the US economy if subsidies were removed?
I presume this would have to be done in stages over a pre-determined number of years.
I live in New Zealand. Once we had fertiliser and other subsidies to help our farmers. As far as I know all subsidies were removed many years ago. This caused great hardship for many farmers but they survived. I cannot say with any certainty but I believe NZ could prove to be the most efficient food producing economy in the world. We are far from our markets yet remain competitive. How do we do it?
It is a combination of smart farming using modern technology and making the most of what nature has given us. Do you know our beef, milk and lamb producers
are almost entirely 100% grass farming? Oops! That’s another question.
I appreciate that using NZ as an example might seem ludicrous. Monsanto can probably swallow our whole economy with hardly a burp.
I hope I haven’t missed your point.
Blessings
Ignorance is not a flaw, it’s a temporary and easily remedied state of being for those interested in a cure. Denial of ignorance is dangerous, recognition of ignorance is a virtue.
On question 1:
US Agriculture will receive around $20 billion in direct payments this year to grow or not grow things, and crop insurance subsidies. There is also spending and mandates on ethanol production (almost all corn) that will consume, I believe, up to 1/3 of our corm crops, maybe more. These all artificially either protect or increase profits, or at least higher prices.
Other things like import quotas and tariffs (think sugar) or supply control (think peanuts and milk), while not a tax expenditure, nonetheless are means of getting consumers to pay more to ag than the prices that would be set at an open market.
We will then, on pretense of offsetting this intentional increase in food prices, spend around $80 billion in aid, primarily in the form of food stamp programs.
Question 2:
No
Question 3:
It would result in immediate pain and market dislocation to a number of politically powerful interests, who know exactly who they are and how much money is on the table. The general populace will observe this pain, be inconvenienced as the system adjusted to reality, and not recognize the multitudinous but individually small improvements in price, quality, and beauty of their new, healthier food supply.
This makes removal highly unlikely in the absence of extreme economic calamity, and completely impossible to do in a phased approach. Once you implement the first dose, the vested interest will (rationally) spend everything up to one dollar less than the value of their subsidies to make sure no one comes out of the next election cycle with any interest in continuing the pain.
If it were to actually by some miracle happen, this painful dislocation, after probably no more than two years, would see agriculture emerge stronger and more robust than anyone can imagine and a remarkable comeback of the now nearly extinct family farm. In ten years anyone who suggested that the government could make the food supply healthier or cheaper would be considered hopelessly demented.
Question oops:
I’d like to think I’m reasonably aware of New Zealand’s marvelous agriculture story, and it should be a model for the rest of us. Monsanto is working night and day to make sure that doesn’t happen. Our government is helping them.
If most Americans got as much of my point as you did, we wouldn’t be in this mess.
Thanks for writing.
Cheers!
Thanks, OB!
Did anyone else have to google “What is a straw man argument”?
Ha! Ha! Sorry — that’s where one implies a position of an opponent and then refutes it, when in fact the opponent doesn’t really hold that view. It’s considered poor form in debate, and standard operating procedure in professional politics.
Think “Republicans want to starve poor people” or “Democrats like to murder babies.” Red meat for the already convinced, but not compelling if your goal is to win hearts and change minds, or just have a rowdy argument over a few drinks with friends.
Drew called me out when I overstated a presumption of perfection on the part of folks who tend to see “government” as the solution to what are perceived as failings of the market.
–The Older Brother
It’s hard to blame the 2008 financial crisis entirely on government and regulators. A good part of it is attributable to private entities acting exactly as one would expect them to in a free market system. The various culpable parties were conducting business in their own best interests, which, unsurprisingly, did not align with the interests of their counterparties.
For example, you had the Goldman Sachs type firms selling products deliberately engineered to fail, and against whose success they placed heavy bets (one memorable metaphor described this as selling a car with no breaks to someone and then taking out a life insurance policy on that hapless customer). As I see it, under the plausible Austrian interpretation of these transactions, either this behavior is fraud, and thus the failure of the government was not through its overreach but through its impotence, or it was acceptable, in which case the government inaction cannot be blamed for the result.
Likewise, another failure was by the three major private ratings agencies, who were certifying as AAA various CDOs and other instruments that were in fact closer to junk status. Under libertarian thinking, several private firms providing competing services in the marketplace should bring about ideal results, but the real world outcome was that each of the firms knew its bread was buttered most by giving their major customers, the investment banks, what they wanted and that was high ratings with few questions asked.
Of course, at this point, I suspect the counter point would be to claim that FANNIE and FREDDIE were the culpable parties in all of this by giving out all those troubled loans in the first place. This ignores the reality that the large majority of the troubled loans were given out by private lenders, whose incentive was to issue as many loans as possible regardless of the consequences because they were paid a commission on loans, rather than on the ultimate success of them.
To make a long story short, these and other entities involved in the crash acted rationally, in a way. Each took actions that brought it short term profits, which is exactly what corporate entities are supposed to do. The problems arose from the fact that the financial system, like many market systems, is rife with externalities, which are the costs (and benefits) that accrue to parties outside a transaction. So S&P, Fitch, and Moody’s got the benefit of continued business by rating crap as triple AAA, and when that crap defaulted, they weren’t the ones who owned the instruments, so they did not lose any money as a result. Likewise, the subprime lenders got their commissions as soon as they originated loans, so by the time the loans exploded, they had washed their hands of them and moved on.
Although I have only done a bit of research, I am not sure I understand the Austrian position on externalities. Any transaction on the open market between two parties that affects third parties will, by definition, be occuring without the input of those third parties, so their interests will not be represented. Outside the realm of finance, a classic example of a negative externality is a polluting factory on a river, where the pollution affects the wellbeing of those downstream. My understanding is there are a handful of Austrian answers to such a problem. One is essentially “people’s lives being affected by pollution is not a market phenomenon so the discussion isn’t relevant,” which is revealing enough without comment. A second is “they can move,” which rather than mitigating the negative cost imposed on a non-contracting party only further emphasizes it. The final, which is interesting, is the idea that those downriver affected by a pollution have a property interest in the river and thus can enter into a contractual transaction with the polluter to vindicate their property rights through compensation or altered behavior. While that sounds nice, it seems awfully artificial in practice to say that it’s a great free market solution for a bunch of people located in a certain area to go to the courts to stop some behavior because it affects their property rights (which come from them living in that geographic area) but it is horrific if those some people by virtue of living in the same area go to the courts to have the behavior prohibited based on some non property theory… it’s just government action disguised through equivocation with free market terms.
So, in my opinion, the proper role of government is to combat the effects of negative externalities. Whether this means enforcing criminal law or crafting effective regulatory schemes to prevent financial fraud, so be it, and of course the lines there are not always super clear. The way to define those prohibited behaviors must be through the consent of the affected third parties, ie, through the democratic process.
Now, the final Austrian retort will be that the whole financial crisis, even though there are legion private entities with some culpability, is attributable to market “distortions” caused by government presence in the market, no matter how small. This is wrong for two reasons.
One, it is ultimately a matter of faith, by which one can dismiss any problem as one of government intervention except in the ahistorical situation where no government existed. In other words, by this logic, as long as someone is describing some problem in some society with some scintilla of government (ie, all of them), one can say whatever limited role the government played in the process was the single source of its failure. Conversely, by this logic, the free market system cannot exist unless there is no government involvement whatsoever, and conveniently, there is no historical society of any significant complexity to which one can point where this occurred. Basically, the free market hypothesis cannot be disproved because there are no situations where its advocates cannot point to some government undertaking some action and blame it disproportionately, if not entirely, for the failure. Of course, some Austrians believe that government does have a legitimate role in enforcing criminal law, preventing fraud, and defending property rights. If there’s some kind of clear line between these duties and simply promulgating useless regulations, I’d love to hear it.
The second point piggybacks off the first. If government does have a duty to enforce criminal law, prevent fraud and defend property rights, government’s role in the financial crisis may well be attributed to its failure to do exactly that. If deceiving clients and lying about bond status and various other things are validly within the government’s duty to prevent, then the government’s failure in the crisis was a failure of too little, rather than too much, regulation.
In the end, I suppose, the devoted Austrian would argue that the current system is too far gone to ever be a basis of a viable society and all of it, the governments, the central banks, the regulators, the fiat currencies, should be torn down. This answer, of course, is no answer because it solves nothing. How do you dismantle modern state capitalism while respecting property rights? Does Jamie Dimon get to keep his property? Does Tim Geithner? Does Bernie Madoff? If they do, then doesn’t this new “free” society leave as powerful all of those who benefited from the previous corrupt system? If not, and their property is taken and given to the non-culpable, isn’t that a whole lot more like communism than like a free market?
But here’s the question — weren’t banks acting in their own best interests ten years earlier? Or fifty? Did greed just infiltrate Wall Street in the last decade? Did human nature suddenly take a destructive evolutionary turn coincident with the turn of the century? Perhaps Wall Street bankers weren’t held in such contempt 20 years ago, but I don’t recall anyone making an argument that they were a bunch of civic-minded egalitarians who just happened to be good at making money.
So what happened? The rules of the game changed. When you’re a banker lending your bank’s money to people, the biggest risk is a default. When the rules change because the government, in order to help the downtrodden, steps in with a program to buy loans that fit the criteria of a spreadsheet, paying your bank a nice fee and removing the risk of default, two significant things happen contra to your analysis:
1) That is most emphatically NOT a free market. Risk is now detached from reward, so
2) the person who takes the MOST risks makes more money than someone trying to control risk
Anyone see how this is going to end?
And Goldman Sachs and B of A and GM and all kinds of players were able to take huge gambles because they understood completely that they weren’t operating in a free market. “Too Big to Fail” is the antithesis of a free market. So if you keep the winnings and the house picks up the losses, why would you not put it all on “7” to win? The profit signal (but not the market — it didn’t get a vote, remember?) is telling you you’d be crazy not to bet big.
Did you know that Chris Dodd quietly slipped in an rule change a decade ago that said the government would back up insurance company losses under the same guidelines that were theoretically designed to protect the “too big to fail” banks? Why would AIG suddenly decide it’s ok to become a major player in the derivatives market?
Goldman specifically didn’t have to worry about paying a price for setting their customers up as suckers, not because the market failed, but because they have a roster of the Who’s Who of the revolving door set between Big Government and Wall Street, starting with Hank Paulson, Bush’s Treasury guy, engineer of the Wall Street bailout, and former Goldman CEO. (Obama replaced him with Wall Street hack Timothy “Turbo-Tax” Geithner, so things really changed. Not.)
There’s really good books on how intimately and hugely responsible Fannie and Freddie and the politicians they were paying off were in the whole debacle.
Among the Fannie and Freddie initiatives, by the way, was getting those same three ratings agencies, who previously did have competition, codified in law as the only ones allowed to certify the safety of their bonds. Free market failure?
Not a free market in sight. And the more removed Wall Street and bankers and insurance companies and mega-national corps got from the free market, the bigger the bubble got.
This my frustration. I seem to be unable to convince people that just because people are wearing three piece suits, or are operating within publicly-traded companies, or are making huge bonuses, doesn’t mean anything they do is “the free market.”
Also, everything those bankers and executives and investment brokers and hedge fund managers did was in fact rational, but only rational in the context of the “rules of the game.” Just like it’s rational for a single welfare mom to take the food stamps, and let her kids be fed pink slime and fruit juice by the government school food program. In context of her options, it’s the optimal decision over the short run, and she doesn’t have long run options.
So within a bubble of irrational rules that rewards behavior that acts as a detriment to society, and shifts punishment to innocents, we don’t have to formulate some spontaneous evolution theory to understand why the same human beings’ “rational” behavior deteriorated so quickly as the free market was taken down a dark alley and throttled.
The bubble manifested on Wall Street, but it was whelped in the hallowed halls of government.
Cheers
Hi, OB! I, too, have loved your posts even though I have not agreed with everything you wrote – my head hurts just a bit but a little perseverance brought rewards. They seemed off topic but they really were about food – at bottom. I started thinking about where my food comes from and how prices are set – interesting.
Call me hopelessly jejune but I do believe that individual conversion to “doing the right thing” is what’s needed. Government is made up of individuals. It really does not exist. Nor does “Big” anything. These are groups of individuals. If each man or woman could see that his and her actions must be moral ones – for good or evil – what a different world this would be.
I’m not bringing religion into this discussion – heaven forbid I should “offend” the atheists in the crowd! But we all do have a moral code written on our hearts. We know when we are being greedy, selfish, mean, heartless, dishonest, lazy. We know when our actions are going to impact others for generations to come – and not for the good.
When we have set systems in place that are fair to all, and just, we must just get on with it. When these systems fail it’s ALWAYS the failure of individuals to live up to this moral code. When we teach our children to be selfless and honest in school what the heck happens to them when the get out of law school and get a job in “government?”
That ‘s the only question in my mind. The kind of government we have or how big it is doesn’t really make any difference. Just my humble opinion. And thanks for filling in for Tom so well – really enjoyed your posts.
Bottom line, a libertarian economic view insists that everyone is an individual with liberty and responsibility inextricably bound. The reason I use the term “Big” (Ag, Pharma, Food, etc) is that although these companies are individuals, when they can use the force of government to enforce a market oligopoly that protects them from competition, inflates profits, compels participation, etc., as a working model they can be viewed as a single entity. That’s why you’ll never hear me refer to Microsoft as Big Software or Apple as Big TechnoGadget.
The point I wanted to make — and the more I reflect, the worse job I think I did — is that the mess we find our food and nutritional culture in (and by extrapolation, most of society) is not just because some government people made some bad decisions, or a few bad apples got in and manipulated an otherwise great system, or that government workers are meaner or dumber or lazier than folks in the private sector. It was that the results we see are as natural and predictable as saying that if you dump tons of ammonia on a field for years, you will look like a production genius — perhaps for decades — but in the end you are destroying so many organisms and processes an interactions, the vast majority of which you’re not even aware of, much less understand, that over time collapse is inevitable.
Cheers!
A final point on my contrariness. My whole motive here is to illustrate that science based nutrition and libertarianism are not joined at the hip, and there are those of us who bear very different political views but prefer steak over soy.
You and I, I think, share the same aversion to the powerful dictating behavior to the powerless. I simply think that libertarianism is too dogmatic in defining “the State” as the only source of power. In a free market system, even one assuming equally starting places, both the powerful and powerless can develop easily. In my experience, it’s quite hard to play the board game Monopoly without someone ending up with all the money and the rest of the players ending up broke. My belief is that the powerless should join their voices in their own defense through the democratic process (and it’s a whole other discussion, but I believe fully in a free marketplace of ideas, just not in a free marketplace of essentials), not that the powerful should be limited only by competition with each other and the powerless should really only on the crumbs of that competition and on the private charity of the powerful.
After all, when I play Monopoly, sometimes the winner is the one who played the best game. But sometimes it’s the person who had the luckiest rolls of the dice.
I agree, there’s nothing about libertarian thought that solves a scientific question, but they are joined in their celebration of the free marketplace of ideas.
The powerless can refuse to do business with Bill Gates. Microsoft has no capacity to compel or prohibit behavior via the threat of legal force, confiscation, or confinement. If the powerless want to grow some extra food in their garden, can some of the surplus and sell it to their neighbors, they have absolutely no recourse when their democratically elected government prohibits them from doing so, compelling them to stay on the dole.
Democracy contains no inherent virtue. Two wolves and a sheep voting on what to have for dinner is democracy, but the answer will always be “mutton” for the powerless. Democracy was proposed at our country’s inception only as a mechanism to protect the rule of law (a republic) and individual liberty from tyrants or, possibly worse — the tyranny of the majority. The experiment seems to have failed.
Consider that Monopoly (setting aside teaching the admirable notion of investing for future income) is actually more reflective of government, or mercantilism, or fascism, or crony capitalism. You have no options but to proceed to do business against your will with whomever your limited path brings you in contact with.
It is also — completely unlike the market — by definition a zero-sum game. Winning comes only at the expense of someone else, and the more you win, the more power you gain and the poorer your “customers” become. Does that sound more like Facebook or the USDA?
Thanks for your feedback. This whole foray into an area I had no reason to expect my fellow Fat Heads to care about has generated far more discussion from all sides than I had imagined. As seems to be the rule rather the exception around here, it’s been robust, and heartily and intelligently and respectfully debated. And for me anyway, fun.
–The Older Brother
Anything that is 16,000,000,000,000 in debt does not work.
It’s an old argument, but a simple one: go back to just following the constitution. Period.
Life. Liberty. The pursuit of happiness. All that jazz. The government didn’t take care of anyone. They just allowed you the freedom to take care of yourself without undo interference.
Sometimes the answer really is simple. But most times the simple answer takes power away from the Powers That Be, and that’ll never fly. Unfortunately, because of this the continued decline of our country is inevitable.
Everyone flooded over here and then started a revolution to escape tyranny (that’s grossly simplified but that’s the basic idea). And it’s come full circle. We have become the tyranny we escaped from.
Now where do we go?
Panama seems nice.
The problem is, really simple can also be most painful over the short run. Said pain will be most acute for those already suffering the most and have the least options. Our governments at all levels have succeeded in either making actually or convincing people that they are dependent on the state. See Greece for how well that works out when it’s time to pay the piper.
Cheers
Really enjoying this! You mentioned FA Hayek and Ludwig von Mises in today’s post, and I’m sure you’ve answered this question before, but what would your recommended reading be for an econ newbie?
Pick up “Economics in One Lesson” by Henry Hazlitt for a good start. I think you can download free pdf’s if you don’t want to spring for a print edition.
If you find that appealing, I several suggestions in a couple of comments at the end of “Part I” if you’d like to keep going.
I feel compelled to warn you that if you get converted to libertarianism, there’s no known cure.
–The Older Brother
Older Brother, I’ll try to keep this short, but thanks once again for the well researched, honest, and thoughtful article. Economists are philosophers too, in a way, don’t you think? Like philosophers, they deal with how society is structured and how people relate and interact to one another….including where our food comes from, and how we relate to our environment. It would be a mistake to think of it as just about numbers and complex math formulas, or even just about party politics. It was only after I began studying economics more that I began to finally understand why there seemed to be a trend among vegans/low fat dieters and political activism, and why we see it especially among celebrities, etc. Anyway, I hope that you continue to write and share on this and other topics, and I’ll be following your your blog too.
Thanks. Probably the root difference between the Austrian/free market schools of economic thought and the Keynesian/pro-government schools is that the Austrian derivatives see economics as primarily philosophy as you note, whereas the Keynesians think of economics as a hard science, making “the economy” something that can be manipulated by experts.
Cheers
Last post, and in regards to Wall Street.
My frustration is that automatically all blame is placed at the feet of government, as long as government had at least a 0.000001% role in what happened. As long as that’s true, it’s not a “free market” and can’t possibly be a market failure. It must be great to have a world view holding that everything would be well and good if only a set of circumstances that never existed or could exist (a truly free market) was in place and arguing that, until then, every problem can be explained away as occurring because the government interfered with the free market.
Maybe we’re just arguing at cross purposes here… maybe Austrian economics is only supposed to propose smug superiority and never actual solutions to actual problems.
It’s like someone who insists the world should be black and white. You point out “hey, there’s this problem with a lot of gray areas and I can’t figure out a solution.”
They respond “Of course not, because there shouldn’t be gray areas. If there weren’t gray areas, there would be no problem.”
And you respond, “I know, but there is a problem and there are gray areas. How can I resolve the problem?”
And they say “There must be no more gray areas. Once it’s black and white, there will be no more gray areas to cause problems.”
And you say “Ok, how do I do that?”
At which point they respond, “You can’t do that. It’s too complicated to figure out which parts of the gray should be black and which should be white. That’s why there shouldn’t be gray areas in the first place, get it?”
So you say, “So I shouldn’t do anything?”
They cry “Of course not! By doing something, you’ll be creating gray areas! It should be black and white.”
And you’d ask, “But there are already gray areas. I’m asking how to fix them…”
They’d look at you dismissively and say “But there shouldn’t be. If only there weren’t, we wouldn’t be having this conversation. You just have to accept that if the world was better then it would be better. You can’t do anything about it. It’s a zen thing.”
Is that all there is Austrian economics? I understand the point about it not being empirical but rather derived logically from axiom (even if I disagree about the soundness of either). Does that mean it deals only in truism and tautology? “If government didn’t interfere in markets then they’d be free. If free markets existed there wouldn’t be any government.”
Is it just observation without solution? I can see where the idea of “solution” is antithetical to the “free market” ideal, which is why I wonder if it’s a proscriptive set of beliefs at all or if it’s just a way to avoid having to have any such beliefs.
To me, it’s the same as saying the world would be better if everyone acted perfectly rationally or perfectly morally. It’s a truism but of no practical value.
There’s no actual advice given.
Is the only solution “abolish the government”? Is there a way to do that in the real world that does not involve horrific suffering on an unimaginable scale? If not, what’s the point?
Black and white is the purview of progressives. Austrians recognize that with 300 million people (or 10 million, or 100,000 or even 1,000 or 100), there is no such thing. We’re actually kind of into gray.
Government at some level is spending over 40% of every dollar of GDP. If I get to decide how “we” are going to spend 40 cents of every dollar you make regardless of your intentions or wishes, do you consider yourself free? Can we agree that we’re far enough away from 0.000001% to consider the argument that we’re nowhere near a free market economy, regardless of what the high school econ textbooks say?
But the money isn’t even really the main part. It’s the way they spend that money and all of the rules and regulations and mandates and edicts and arbitrary bureaucratic power that distorts and corrupts the information and incentives and signals that otherwise manifest in the gray cloud of a free market; where each individual has the ability to seek only what they want and can agree to with other free individuals.
Austrian economics says that an answer will evolve as people address it individually, working to their perceived best interests. Not perfect, just best. Austrian economics doesn’t presume to be able to design a solution that will be the best option for 300 million stakeholders.
So the advice given is:
Protect individual liberty.
Protect access to information.
Protect access to markets.
Protect property rights.
Prevent fraud.
Prevent force.
Enforce free-will contracts.
The solution will take 300 million various forms.
The Keynesians suffer from no such modesty about their ability to dictate solutions from on high. Their supreme confidence is completely uncorrelated with their results, and their black and white solutions serendipitously always involve their employers — the Bigs, especially government — needing more authority, more rules, more bureaucrats.
That’s why, as I pointed out previously, the Austrians are correct, but the Keynesians still always get the high paying jobs and the hot chicks.
Cheers!
I think that there is an important point that many of your detractors are missing. The government does not provide a single service better than the private market could. We would be hard pressed to find a service that is even comparable to the free market. Just because the government is not completely and utterly failing at a given task doesn’t mean that it is preferable to its free market alternative.
The problem with the government is that there are no incentives. Money is meaningless. Budgets are barely even guidelines. No one is fired for poor performance. Nothing is cut for poor results.
What the planners fail to realize is that in the end people are rather simple. Incentives promote progress, disincentives promote sloth. The government behemoth is once gigantic disincentive to meaningful work. It doesn’t matter if you’re the best darn bean counter west of the Mississippi, you’re still paid the wage the union negotiated, and you’ll still get a promotion no matter what.
Soon you realize that there’s no benefit to being the best bean counter, so you become an average bean counter. Then you realize that the guy down the hall who plays WoW all day is getting paid exactly the same as you, so you take up a game of your own.
Productivity falls, but no one can be fired. Hell, reduced productivity is good for your office because it means that you’ll get a higher budget next year since it’s obvious that you need more employees to do the job.
As simple as it might be to dismiss the government as simply misguided when it comes to food, the truth is that mismanagement doesn’t begin or end with the food pyramid. It’s systemic, and inevitable.
My point exactly. Attempted, anyway. Welfare, medicine, education, defense, finance, and (especially for Fat Heads) our food have been co-opted by forces who increase profits to our detriment instead of our benefit by avoiding the free market.
–The Older Brother
Eleanor, gotta say that your anti-progressive tinged comments seem a little off the grid from what Jerry was trying to get across. By the tone of your post, I’m guessing you have your share of Anne Coulter books and maybe an 8×10 glossy of Sean Hannity somewhere. Of course I’m just kidding..you’d have to believe in God to be at those absurd levels of conservatism.
However, you seem to generally group progressives together as a people reared to suckle from the teet of this nation’s collective energy…in some cases, I wouldn’t disagree. But apparently, your viewpoint isn’t as tempered as mine (despite your working knowledge of economics). I believe that most liberals are concerned with attaining an equitable and fair minded state. They are trying to level the playing field out of (gasp) compassion. This doesn’t necessarily, and I’m sad to say, hardly ever equates to success…but the sincerity is there. It is evident that you don’t even give them the benefit of any doubt…and why should you? You “know some economics.” Of course you’re qualified to throw blanket judgments.
This is the problem with tribal politics as we know it today. Politics shouldn’t be like a football game with all the hype, cheerleaders on the sidelines and of course, the fans. Naturally, when one has a vested interest in the outcome of an “us vs. them” scenario, they will be predisposed to see counter points during discussion as “tour de forces” for the home team. Sadly, all that this partisan fervor accomplishes is the undermining of the clarity that logic and reason can offer.
Hey, buddy — you leave Ann Coulter out of this. Har! Har!
Thomas Sowell wrote a book “A Conflict of Visions” illustrating how progressives and libertarians (liberals and conservatives, whatever) can look at the exact same set of facts and outcomes and have completely different interpretations. Like Claudio an I both pointing to our food system and the existential threat to our national health, with Claudio declaring it proof that government works while I say it proves abject failure. You’ll see this same disconnect repeated across the spectrum of social issues.
What it comes down to is the free market types, advocating as realists, get graded on reality. The progressives, advocated for the ideal, score themselves based on their ideals.
So, the market, being composed of humans, is always imperfect, manifesting some identifiable instance of greed or intolerance or corruption. Progressives, correctly asserting that is is not the state of perfection to which they compassionately aspire, insist on more quickly or visibly addressing these imperfections by overriding the market’s organic pace.
The resulting disasters and myriad unintended consequences, when pointed to by conservative types, are dismissed as simply works in progress that just need some more tweaking, or better people, or more money, but the intentions are still pure and therefore superior to the hard-hearted libertarians.
And so it goes.
–The Older Brother
“A completely useless diatribe on the free market could only come from a privileged, white male.”
Who makes a statement is irrelevant to the truth status of the assertion. Any assertion must stand or fall on it’s merit; it must stand on it’s own logic and what facts of reality do or do not back it up.
1+1=2 is false. Why? Because it was said by a white male. Utter nonsense.
That unfortunately seems to be the first step of the lower forms of “progressive” analysis. Most folks here who disagreed brought much better arguments with them. Wore me out!
Cheers
Loved your series OB, thank you! I’m going to be different here and say, I’m on board with everything you said. Oh wait, I’m a Libertarian. Our original Constitution was a marvel of wisdom at the time. Yet it was not perfect. Everyone wants to blame Congress or the President for this or that, but what gets overlooked is the corrupt Judicial system. Judges have final say on laws and their perception of constitutionality and they have failed in upholding our natural right to liberty and justice for all. We could go on for hours I’m sure. The flaw with the Constitution was and is making Federal Judges ‘Kings’ with no term limits with immunity. There are so many constitutional laws that we just live with because they were a digestible in the presence of fear in a crisis. Term limits should be for all elected and some non-elected government officials. Its too bad that there’s little incentive to have a quality aspect to our laws. Say a continuous improvement based on actual measurements and analysis of performance. Unfortunately for society it takes an act of Divine Leadership (we don’t have any), Compromise (not this day and age with Partisan Politics) or a Crisis. You already know where this country is headed. The sad thing is Liberty is slowly eroding and there is such profound apathy!
I don’t think there’s any one failing we can pin our decline on. Even term limits would’ve put Ron Paul out of the public debate years ago. I can’t imagine that he would’ve been rotated out ( for a few cycles now) for an equally ardent advocate for individual liberty and a limited government. I got to observe The Beast in action at the state level a lot when I was in Dad’s business — I got very involved with NFIB (small business lobbying outfit). My opinion is that if you term-limited out the politicians, the bureaucracy and lobbyists gain even more influence.
Ultimately, the only possible solution for getting our government under control rests with the same folks who will get our nutritional landscape back to health. We see them every morning when we look in the mirror.
Cheers
And besides that Claudio, here’s what’s really wrong with government action:
The only proper society is one in which the initiatory use of physical force is banned. No man may initiate the use of physical force against others. No man—or group or society or government—has the right to assume the role of a criminal and initiate the use of physical compulsion against any man. Men have the right to use physical force only in retaliation and only against those who initiate its use.
A government is the means of placing the retaliatory use of physical force under objective control—i.e., under objectively defined laws.
The only proper purpose of a government is to protect man’s rights, which means: to protect him from physical violence. A proper government is only a policeman, acting as an agent of man’s self-defense, and, as such, may resort to force only against those who start the use of force. The only proper functions of a government are: the police, to protect you from criminals; the army, to protect you from foreign invaders; and the courts, to protect your property and contracts from breach or fraud by others, to settle disputes by rational rules, according to objective law.
Government enforcing nutrition policy of ANY kind is wrong because government action IS physical force. And in enforcing this kind of thing they are initiating physical force. There simply can never be any justification, ever, for initiating physical force. (Notice I said ‘initiating’, force is for defense only, and legitimately so.) The ends never justify this means. The alleged ‘nobility’ of any end is destroyed by initiating physical force to accomplish it.
OB, within the libertarian/free enterprise framework, don’t you think that it is government’s duty to ensure there is a free market, as per Adam Smith’s the Wealth of Nations?
For example, a law requiring minimum business entities in every industry.
I’m not a complete anarcho-libertarian, and do see some utility for a limited government function. (I got schooled by David in the comments towards the end of Part II, including references, on how to do completely without government. Interesting points.)
I have to say that while government protecting the conditions for a free market is something I still believe could be done with less harm than good, there is no such thing as a correct minimum number of business entities in an industry if it’s a free market. If a single provider is pleasing all of the customers in a market, and that prevents a competitor from entering the market, the correct number is “one.” It could be zero, or fifteen. It could be six today, but four tomorrow. The last outfit we want making that decision is government.
Adam Smith’s The Wealth of Nations is recognized as the official genesis of Economics as a separate branch of study from philosophy, and was a breathtaking leap in understanding the power of markets and the concepts that motivate what he termed “invisible hand,” but it was hardly a free market libertarian manifesto. I’d compare it to the similar breathtaking leap this country’s founding fathers promulgated concerning the liberty of the individual over the state, while yet many remained slave owners.
–The Older Brother
Bigmyc: “Eleanor, gotta say that your anti-progressive tinged comments seem a little off the grid from what Jerry was trying to get across. By the tone of your post, I’m guessing you have your share of Anne Coulter books and maybe an 8×10 glossy of Sean Hannity somewhere. Of course I’m just kidding..you’d have to believe in God to be at those absurd levels of conservatism.”
Good god (pardon the mention) NO! I actually don’t see much difference between ““progressives” and Hannity/Coulter and their ilk! Both want the *govt* to fix things — just different things in different ways. They’re all sell-outs in one way or another: one group wants the govt to mandate and prohibit these things; the other group, those things. I am a far, far right reactionary… so far out I actually agree with the left on some things (while disagreeing vehemently with how they’d try to accomplish them). And believe in God? The ultimate (fictional) “Big Stick” for control of the populace?!
I am a Nietzschean anti-modernist — I align myself with master morality, the morality of the raptor; I acknowledge Nature red in tooth and claw! I (actually) feed the songbirds to feed the hawks! And while I feel sorry for my cute little backyard chipmunk, eaten by the fox last week, my loyalty is to Nature and the predator! Is that harsh? You bet. *I* am not being coddled by the govt, I’m being robbed on behalf of people not of my choosing. (Small biz owner — shall we talk about an unlevel playing field?!) If I go bankrupt, I do not expect the govt to swoop in and rescue me (not too big to fail, eh?). If my biz goes under, I can’t draw the unemployment I’m *forced* (at Jerry’s described gunpoint) to pay — but I can’t keep that money to try to prevent my company going under. (I’m not close to the progressives’ “eeeeevil 1%” — but they seem to hate me, and want to tax, rob, control and drive me out of business!)
Bigmyc: “They are trying to level the playing field out of (gasp) compassion. This doesn’t necessarily, and I’m sad to say, hardly ever equates to success…but the sincerity is there. It is evident that you don’t even give them the benefit of any doubt…and why should you?”
Exactly! They’re not trying to level the playing field out of reason or logic or to avoid previously (and multiply) proven failures! “Compassion” — when it means intentional and forcible unfairness, when it means restricting or punishing or denying one group in order to allow ascendance by another group — but NOT on their merits or their abilities, not on anything other than perception (i.e., NOT on reality, but on how (some) people think or feel about something) has nothing to do with compassion, and everything to do with *group loyalties* and taking from some to give to others.
“The sincerity is there”?! “The benefit of the doubt”?! (Good god!) I should support FAILURE because their (your?) intentions are good? Where is the compassion for the small business owner? Where is the compassion for the recently widowed trying to carry on an actual American manufacturing company?! Why should I support something that even you (a progressive, I’m guessing) say “hardly ever equates to success.” I should choose to join in your failures because… um… Why is that exactly?!
Um, Elenor — I don’t think bigmyc was arguing your position, just the tone. It’s a small sandbox, kids — let’s all try to play nice!
Cheers!
Been reading this series of OB posts with interest and silence. I largely agree with the views expressed (as you may know if you read Tom’s other blog.) Just thought I’d chime in on the comments regarding New Zealand agriculture, being both a New Zealander and a farmer. Deregulation caused pain, lots of it. People walked off their land. People struggled for years. We now have arguably the most competitive agriculture sector in the world. What’s more relevant to this article is that for all the “investment” the US government puts into agriculture, we can still produce milk vastly more cost effectively, notwithstanding the fact that ours is predominantly pastured.
I was hoping you’d add some personal observations on the New Zealand experience. You highlight the pain I referred to which I think makes it nearly impossible to implement through any normal political process in our country.
I say there would be dislocation, which is easy to say in the abstract, but that means people struggling, losing their land, etc, as you point out. The thing is, most of those people are fundamentally decent. They weren’t out to shaft taxpayers or pull one over on their neighbors. They were trying to make a decent living based on the information available and the rules of the game, just like everyone else.
That was the major point of Part I, though — all of the information they had available was distorted, and all of the rules of the game made decisions that were rational while subsidies were in place. However, when the subsidies ended and the market rapidly adjusted to reality, they were in a terrible position. All at the same time. That’s how a bubble bursts, and then we see all of those decent, hard working people whose lives have been turned upside down and people’s first reaction is “oh my goodness, can’t the government do something?”
But the government already did do something. It created the booby trap and lit the fuse with the unsustainable subsidies. So good people get hurt, but the best solution is to get it all over with as fast as possible.
If people understood this, they would reject any kind of subsidy out of hand, and let the endurance of small or temporary inconveniences play themselves out instead of letting a sense of compassion set the next booby trap.
–The Older Brother
If you want your government as small (weak) as possible, then you have to accept that the power of capital (money) will prevail.
Does this make your country better?
If you accept the fact that the U.S. politics is already influenced too much by money (interests) and you want a small government, I don’t know how far someone can go this confused. It is not your government but it is money you want whose influence small.
Just compare health care systems among advanced countries around the world. Which has the worst system? I’m sorry but a small government (e.g. U.S.) does not fare well in this case. Don’t be confused between money and money influenced government.
Amazing. What will prevail in the absence of large government is individual liberty, not capital or money.
Capital and money will then be directed, by said newly freed citizens, to the uses they feel are best for them, instead of having their money and capital directed by a government easily influenced by vested interests.
There are two ways for a company to dominate a market. One is to provide a level of quality and service that pleases people so much that competitors are stymied. Think Facebook (which I still refuse to sign up for).
The other is to purchase the opinion of 51 Senators, 218 Representatives, and the President, which is quite a bargain. Think Solyndra or Fannie Mae. The beauty of this approach is that once purchased and moved to the protection of the government bureaucracies, the incumbent enjoys a natural constituency.
It’s obvious which path we’ve gone down, with almost all major companies having “offices” in Washington, DC; and the surrounding zip codes reflecting some of the highest per-capita incomes in the nation, even though nothing is made there — other than laws and regulations.
The parts of our health care system that are either still significantly in the free market (lasik, elective surgery), or manage to minimize the intrusiveness of government (concierge medicine) are world class. The parts dominated and/or constricted by government (Medicare, Medicaid, insurance industry), and which already comprise a plurality of our system are on an accelerating path to catastrophic collapse, just like in all of the other countries where it’s “free.”
There’s nowhere else in the world any sane person would want to be be if they needed best in class health care, excepting things like “medical tourism,” where for example people will schedule a surgery in a world class clinic in India, staffed by US trained doctors. It’s cheaper than here, because they don’t have to deal with all of the regulatory barriers to competitive care erected in this country. So they’re better and cheaper — because it’s a free market.
Cheers
Hmmm, well, perhaps I may have over-reacted to his suggestion that I think ANYthing positive about Hannity and Coulter and the religious right… But having just wasted seven hours yesterday trying to get help from the not-so-local IRS office… and having it turn out that *I* knew more than the “counselor” about dealing with the taxes owed by the business for last year, I’m (still/again/always) very very very jaundiced about “our” govt.
And the progressives (and so-called conservatives) who think something wonderful can come out of a huge herd of people with all the flaws that flesh is heir to — and who are protected from their own mistakes, missteps, and intentional failings so they have no incentive except personal incentives to learn and excel, or even to do an acceptable job — really get my goat! (Grass-fed, of course.) Why does anyone think that, if one or two humans, motivated mainly by their own interests, often make decisions and choices that are less-than-optimal for the whole group, gathering up 100 or 200 of them will suddenly make them all wise?!
{grumble grumble}
Ah. Anyone having had to spend a day interacting with the IRS is officially free to be a little touchy. Hope it worked out okay for you. If anybody down there asks, you never heard of me, okay?
Cheers!
Please read O.E.C.D. date sheets about U.S. and other advanced countries health care system. Unfortunately the U.S. is the last place holder last time I checked. Claim your opinion based on facts not on your fantasies. Cheers.
I’ll take that one myself. (This is Tom, not the Older Brother.) Where a country ranks on that scale depends entirely on which factors the ranking organization decides to consider and how much weight each factor is given. The U.S. ranked #1 (that would be first) in responsiveness (i.e., receiving treatment in time to save your life) and also in survival rates for several diseases. The ranking organization chose to give those factors a very low weighting, while giving “fairness” a very high weighting. In other words, a country in which everyone receives equally slow and ineffective health-care would out-rank the U.S. because it’s more “fair” if everyone suffers equally, as opposed to the U.S., where the wealthy can buy as much health-care as they choose while the poor can’t.
But if you really want to believe people receive better health care in Honduras than in the U.S., knock yourself out, my little socialist friend.
And from The Older Brother…
So you’re citing for your facts the “Organisation for Economic Co-operation and Development?”
Ha! Ha! Ha! Ha! Ha! Ha! Ha! Ha! Ha! Ha! Ha! Ha! Ha! Ha! Ha! Ha! Ha! Ha! Ha! Ha! Ha! Ha! Ha! Ha!
Good one. An organization of taxpayer-financed jet-setting gasbag apparatchiks dedicated to “global development.” i.e., helping governments develop government policies to address societal issues — caused by governments. How’s that working out for you?
I love your sense of irony.
Let’s take one of the OECD’s most popular health care chestnuts, the idea that the evil US health care system, despite all the money we spend, ranks abysmally low against the rest of the world in infant mortality rates. We’re at nearly three times the rate as Slovenia. Slo-freaking-venia, for crying out loud! How could that be? Don’t you just take the number of pregnancies, subtract the number of live births, and divide that by the total pregnancy number?
Nope. You don’t count stillbirths or what’s considered “non-viable” pregnancies. But countries define viable differently. In the US, we are very aggressive and go to extraordinary measures (and expense) to bring extremely premature babies to term. Many fail, and this gets counted in our total pregnancy AND mortality numbers. Other countries simply do not invest in the resources for this level of care, and therefore many of the same pregnancies never make it into to those numbers.
So, in the US, if 2 out of 10 pregnancies are extremely premature, and we save one of those and rest live, we have 9 live babies, but a 10% infant mortality rate. In many other countries, the same set of circumstances gets counted as 8 pregnancies, all successful, for a butt-kicking 0% infant mortality rate! Of course, there’s one less baby going home with Mom.
Here’s an excerpt of a study in BMJ:
“Several institutions, such as the United Nations Children’s Fund and the Organisation for Economic Co-operation and Development (OECD), provide international rankings of countries based on perinatal, infant, or child mortality.1 2 3 4 This annual updating of the health of children worldwide receives considerable attention in the lay press and medical journals, and frequently serves as the basis for political rhetoric, especially in industrialised countries.5 6 7 8 The subject is particularly pertinent in Canada and the United States; Canada placed 14th among about 35 OECD nations in 1960, ranked sixth in 1990, and began a steep descent to its current position of 25th place in 2008.2 The United States ranked 13th in 1960 and 22nd in 1990 and is currently in 31st place among OECD countries.2
Although the intent of such international comparisons is to spur improvements in children’s health globally, the validity of the rankings is questionable. Wide variations in birth registration procedures, even among industrialised countries, mean that comparisons of crude infant mortality may reward countries with a pragmatic approach to birth registration (that is, those which register only infants who survive or have a reasonable chance of survival). The medical literature documents wide variation in the registration of live births and stillbirths, especially with respect to births at the borderline of viability (for example, those with a birth weight of less than 500 g).9 10 11 12 The World Health Organization recommends that international comparisons of infant mortality should be restricted to live births with a birth weight of at least 1000 g.13 The classification of deaths as neonatal deaths versus stillbirths and birth registration practices related to infants with lethal congenital anomalies (including the registration of live births that occasionally follow prenatal diagnosis and termination of pregnancy for congenital anomalies) are other potential sources of variation.11 14 15”
The OECD absolutely knows this, yet they use it to proselytize for government health care as superior to our now much hobbled system. That means they’re freakin’ liars. So whose facts are really fantasies, and didn’t you really already know that?
Thanks again. I wasn’t going to mention this, but Tom narc’ed me out as turning 55 today (or, as my hopelessly self-centered baby-boom generation likes to call it, “approaching middle age”). A good laugh is always a great birthday present.
–The Older Brother
Said I wouldn’t post again, but this is too good to resist.
http://www.economist.com/node/21555472
I’m happy to return to discussions of pastured bacon.
Yeah, me too!
thanks for the link. Interesting read.
–The Older Brother
Interesting post. If only Austrian school economics weren’t completely discredited by history. Even its founders admit that they cannot prove or test their theories empirically.
But at least Hayek wasn’t the wackiest Austrian in the pack. Here’s a quote to break a few libertarian hearts:
“Nor is there any reason why the state should not assist the individuals in providing for those common hazards of life against which, because of their uncertainty, few individuals can make adequate provision. Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor the efforts to overcome their consequences are as a rule weakened by the provision of assistance – where, in short, we deal with genuinely insurable risks – the case for the state’s helping to organize a comprehensive system of social insurance is very strong… Wherever communal action can mitigate disasters against which the individual can neither attempt to guard himself nor make the provision for the consequences, such communal action should undoubtedly be taken.”
Directly from The Road to Serfdom.
As I referenced in an earlier comment, Hayek did indeed feel there might be an exception for catastrophic cases — in 1944:
The Road to Serfdom (1944), grudgingly accepts the possibility that some “free” countries might find it necessary to set up a bare-minimum catastrophic social insurance program limited to the very neediest, so long as the benefits do not incentivize productive members of society to abandon free-market retirement savings or medical insurance.
30 years later, having seen how these “bare-minimum” programs inevitably metastasize, he acknowledged (which Keynesians and government hacks are incapable of doing) that what he considered as a plausible exception was merely falling into the same failure of the imagination that is the bedrock of the quantitative schools of economics:
By the mid-1970s, Hayek had fully distanced himself from the modest benefits he’d originally conceded to in The Road to Serfdom. In his preface to the 1976 edition, he explained his “error”: “I had not wholly freed myself from all the current interventionist superstitions, and in consequence still made various concessions which I now think unwarranted.”
So, 40 years ago Hayek did in fact note that health care, like any other limited resource, moves according to economic laws, the primary one being that freedom always provides better than tyranny.
I see the puzzling claim that Austrian economic theory has been discredited often, never with an actual “proof,” and always by the economic hacks fed at the trough of the geniuses who brought us the market bubble, the real estate bubble, the banking bubble, the Euro Zone bubble, and — coming soon to an economy near you — the impending collapse of the dollar bubble.
I suppose when Austrians were warning of all those — while everyone else partied and talked about “the new economy” and our government geniuses like Greenspan and Bernanke were developing tennis elbow from patting themselves on the back over their “Great Moderation” that seemingly created wealth and a forever growing economy with debt and inflated money — was probably just a lucky guess.
Austrians don’t say that their theories can’t be tested empirically, they say that no economic theories can be tested empirically.
In the end, in our economy just as with our nutrition, it comes down to the exact same question:
Who you gonna believe — the government experts, or your lyin’ eyes?
Cheers
Here is a link to the .pdf version of Economics in One Lesson by Henry Hazlitt. You can put it on your iPad (if you have one) and read it on iBooks (that is what I am doing).
http://c457332.r32.cf2.rackcdn.com/pdf/books/Economics_in_one_lesson.pdf
Also, we can’t forget the effects of money supply (inflation) on the effects of the food at the store either. While the prices of the food we buy are artificially low due to the subsidies, they are somewhat offset by the inflation we see due to the printing of vast amounts of money. Sadly, we haven’t begun to see the full extent of this yet as the printed money is sitting in bank vaults and hasn’t reached circulation.
http://seekingalpha.com/article/167140-is-the-fed-really-printing-money
Great links. Thanks.
–The Older Brother
“I see the puzzling claim that Austrian economic theory has been discredited often, never with an actual “proof,” and always by the economic hacks fed at the trough of the geniuses who brought us the market bubble, the real estate bubble, the banking bubble, the Euro Zone bubble, and — coming soon to an economy near you — the impending collapse of the dollar bubble.”
I got some bad news for you; burden of proof is on the claimant. So if the Austrians think their theories hold water, it is up to them to demonstrate that their theories are correct…Oh wait, that’s right, they admit that they can’t.
“I suppose when Austrians were warning of all those — while everyone else partied and talked about “the new economy” and our government geniuses like Greenspan and Bernanke were developing tennis elbow from patting themselves on the back over their “Great Moderation” that seemingly created wealth and a forever growing economy with debt and inflated money — was probably just a lucky guess.”
Nice try, but if they claim their theories can’t be empirically proven they cannot claim that they successfully predicted this bubble. For one thing, it wasn’t only Austrians who warned about the coming bubble. Secondly, Austrians have ALWAYS been predicting doom and gloom since the creation of the Fed, so if they were ‘right’ this time you’re counting the hit and not all the misses. Since it is a well established fact that boom-bust cycles are inherent in capitalism(and Austrians don’t dispute this), it doesn’t take a genius to see that every boom is going to be followed by a bust.
“Austrians don’t say that their theories can’t be tested empirically, they say that no economic theories can be tested empirically.”
That’s a fancy way of trying to duck the burden of proof, but it doesn’t work. It’s no different from psychics and other charlatans who want to change the scientific criteria for testing their claims when they can’t pass normal scrutiny.
“Who you gonna believe — the government experts, or your lyin’ eyes?”
Give me a good reason why I should trust private sector “experts” any more than government ones?
Lastly, there is a VERY easy way for you to prove your claim about the validity of Austrian economics. Show us a country which has applied these principles and prospered.
I’ll take that one (it’s Tom): When honest economists admit economic theories can’t be empirically tested, how exactly is it “ducking”? We can’t set up a lab experiment like we can in physics or chemistry. Asking an economist to match the criteria of physics or chemistry is just silly.
If the burden of proof is on the claimant, where the hell is the empirical proof that Keynesian economics works? According to Keynesian theories, there should be no such animal as “stagflation” — but that’s exactly what we had in the 1970s. If Keynesian economic theories were correct, the trillions we’ve wasted in “stimulus” spending should have us rolling in prosperity right now, with low unemployment. Last time I checked, that wasn’t the case.
Even Keynes prescribed deficit spending during recessions balanced by PAYING OFF THE DEBTS during periods of economic growth. If you can name a country practicing Keynesian economics that has done that, let us know. What I see are countries practicing Keynesian economics and piling up massive debts as a result.
Since Austrian economics is based on freedom and Keynesian economics is based on government compulsion, the burden of proof should be on those who want to take away our freedom for some supposed benefit, not on those who want to allow people to make decisions for themselves.
As for naming a country that prospered under Austrian principles, that would be U.S. before the “progressives” came along.
And the “freedom” or “tyranny” dichotomy is simply childish. The state has ALWAYS been a part of capitalist development. Dig into the history of ANY successful(or even not so successful) capitalist country and what will you find? Tariffs, subsidies, land giveaways, imperialist land-grabs, tax breaks, public education and public health initiatives, and even state-owned or partially state-owned enterprises. As long as you view ‘the government’ as something entirely separate from the ‘private sector’, you are going to have trouble grasping economic reality. For one thing, if there was some pure era of capitalism without government interference and regulation(please, show us when), and if the market does truly indeed tend toward the best solutions, you would be hard-pressed to explain where “government” came from in the first place. Second, what is the guarantee of your private property rights? The courts, backed by the police and the army, possessing a monopoly on legal violence. Otherwise your property would belong to those who possess the strength, weapons, and will to have it, and you would have no recourse against its seizure.
“I’ll take that one (it’s Tom): When honest economists admit economic theories can’t be empirically tested, how exactly is it “ducking”? We can’t set up a lab experiment like we can in physics or chemistry. Asking an economist to match the criteria of physics or chemistry is just silly.”
Economics will never be like chemistry, but the Austrian claim that you can’t predict anything and you must let the market decide(and we can’t understand the market) is nothing short of economic theology.
[The Austrians don’t say you can’t predict anything. They say economic theories can’t be tested empirically like theories of physics or chemistry can. Big difference. Austrians did predict the housing crash, and they did by applying Austrian economic theories.]
“If the burden of proof is on the claimant, where the hell is the empirical proof that Keynesian economics works? According to Keynesian theories, there should be no such animal as “stagflation” — but that’s exactly what we had in the 1970s. If Keynesian economic theories were correct, the trillions we’ve wasted in “stimulus” spending should have us rolling in prosperity right now, with low unemployment. Last time I checked, that wasn’t the case.”
First of all, I am not arguing the merits of Keynesianism, but we can look at history and see that Keynesian theories have done far better in the real world than Austrian theories, mainly because the latter have never been put into practice and never will.
[Say what? Our most Keynesian president — FDR — was the only president in history to preside over a recession lasting more than five years. We have a Keynesian president now, and that “stimulus” spending isn’t exactly working. And to repeat, the U.S. did prosper with a largely free-market economy, as have several other countries. They just didn’t call them “Austrian” because the term didn’t exist.]
More importantly, any failure of Keynesians to meet their burden of proof(which some might claim has been met) does not REMOVE the burden from the Austrian schoolers.
[And once again, you’re asking for empirical proof that isn’t possible. My standard for a “burden of proof” is this: if you’re going to take away my freedom, you’d better have a damned good reason to do … with proof that it’s absolutely necessary to do so. Austrians aren’t asking to take away my freedom.]
You also forget that the neo-liberal ideas of Milton Friedman have been the standard since the 1980’s, not Keynesianism. That is why the “stimulus” isn’t going to work because both parties have one solution to economic problems- throw more money at the private sector and hope they create jobs. In real life, they just happily pocket that money.
[Really? Piling up massive debts is what Milton Friedman recommended? Throwing taxpayer dollars at the private sector is what he suggested in “Free to Choose”? Have you ever read the man’s work?
They pocket the money? Rich people just hide their money under a mattress? No, they spend it or invest it.]
” What I see are countries practicing Keynesian economics and piling up massive debts as a result.”
These countries have debts because they fell more or less for a neo-liberal theory. Although Keynesian theories could not help them forever in the long run.
[Please cite the Austrian economist or Austrian economic text recommending high levels of government spending. Because believe it or not, governments don’t go into massive debt without high levels of spending.]
”
Since Austrian economics is based on freedom and Keynesian economics is based on government compulsion, the burden of proof should be on those who want to take away our freedom for some supposed benefit, not on those who want to allow people to make decisions for themselves.”
As usual, Austrian schoolers can’t prove their theories so it’s time to talk about “liberty” and “freedom.”
[Austrian theory is all about freedom, genius. It’s not as if they changed the subject. Freedom is the subject.]
Again, please show us this Austrian-school-principle nation which has prospered and is bursting at the seams with “freedom.”
[The U.S. before the “progressives” moved in, Hong Kong, the German republic after WWII.]
And how could you talk about allowing people to make decisions for themselves when Austrian theory(somewhat correctly) points out that individuals cannot have all the information they need(imperfect knowledge)? Furthermore, what freedom do you have when you own no property?
[How the hell does not having “all the information they need” translate into not allowing people to make decisions for themselves? “Not having all the information they need” is the reason we don’t want central control — because the central planners can never know enough to correctly plan an economy. Imperfect knowledge is an argument for freedom, not for central planning. Individuals are capable of finding out what they need to know to make decisions for themselves. Central planners aren’t capable of finding out what they need to know to make decisions for 300 million people. That’s the point, genius.
No freedom without owning property? Seriously? What does one have to do with the other? Here, let me have a bit of fun by thinking (ahem) like you … what freedom do you have if there are no purple elephants? Huh? Huh?]
I was also watching more of this film and I was surprised to see the lawyer-bashing. Most libertarians argue that government is largely unnecessary and that civil courts can resolve disputes between citizens(even though this would entail government intervention and compulsion to enforce judgments). Look at it this way, the FREE MARKET has dictated that America has a lot of lawyers. These are private individuals running a business. You want to DENY them the freedom to ply their trade? What TYRANNY!
[No, I don’t want to deny lawyers the freedom to ply their trade. I just want lawyers who file lawsuits against people or companies to be required to pay their legal expenses if the person or company being sued isn’t found liable. Some jackass lawyer shouldn’t be able to make me $50,000 poorer by suing me for some supposed damage I didn’t actually cause.
Libertarians agree that adjudicating disputes and enforcing contracts is a legitimate role of government.]
Also I didn’t get the point of the movie where he points out that the federal, state, and city governments allegedly don’t provide playgrounds in some unnamed areas, while McDonald’s does.
[That doesn’t surprise me. You don’t seem to “get” rather a lot.]
Very well, but wherever the government DOES provide a playground, I can see the libertarian crowd screaming about “men with guns” forcing you to pay for state-run playgrounds. Why it’s almost like Soviet industrialization all over again!!
[Tell ya what … when the day comes that the biggest debate we have over the proper role of government revolves around spending money for playgrounds, we’ll talk. The Constitution places strict limits on the power of the federal government (which the federal government has ignored) but allows states and cities to make their own decisions. If a city wants to build a playground, that really doesn’t bother me.]
As for naming a country that prospered under Austrian principles, that would be U.S. before the “progressives” came along.
I try to stay away from government involvement as much as I can, but I will admit, it may cost more to purchase the local goods, but they sure taste better too. I try to purchase local grown as much as I can despite the hit to my wallet.
@Pierce
While this is a bit late I’d like to make one point that I think many liberals miss. When conservatives & libertarians refer to the “Free Market” it is in the same context as a “Free America”. However liberals tend to conflate “Free Market” with some sort of anarchy where there are no rules. Free does not equate to lawlessness.
Often times in debates a lot of words are expended due to the fact that the participants use the same words but mean different things.
Indeed. Fans of the free market still believe government has a legitimate role in preventing fraud (if you’re defrauded, that wasn’t a voluntary exchange), enforcing agreements and adjudicating disputes.