We should want the people mad enough to demand no more bailouts.

FEE Timely Classic
“Bailing Out Statism” by Sheldon Richman

Why does government set prices?

FEE Timely Classic
“Rights Versus Entitlements” by Steven Yates

Agendas in conflict.

FEE Timely Classic
“Mandating Renewable Energy: It’s Not Easy Being Green” by Michael Heberling

Anyone see that coming?

FEE Timely Classic
“The Financial Bailouts: ‘See the Needle and the Damage Done’” by Lawrence H. White

Yo, I gotta nice bridge here. Ya wanna buy a bridge?

FEE Timely Classic
“Obama’s Impossible Healthcare Reform Promises” by Sheldon Richman

How about free banking?

FEE Timely Classic
“Commercial Banking in a Free Society” by Steven Horwitz

Beware any close relationship between business and State.

FEE Timely Classic
“Economic Fascism” by Thomas J. DiLorenzo

Wasting time is apparently okay.

FEE Timely Classic
“Recycling Myths” by Lawrence W. Reed

Medical marijuana strengthens government power, but the federal crackdown was outrageous nonetheless.

FEE Timely Classic
“Benjamin Rush and ‘Medical Marijuana’” (pdf) by Thomas Szasz

Nothing has changed.

FEE Timely Classic
“A Crisis of Political Economy” by Chris Matthew Sciabarra

Never believe the government’s numbers.

FEE Timely Classic
“Mencken’s Wisdom” by Donald J. Boudreaux

Since Washington would control the insurance business in any case, the “public option” is window dressing.

FEE Timely Classic
“Obama’s Health-Insurance Cartel “ by Sheldon Richman

As we see in Moore’s new movie, Capitalism: A Love Story, Moore is offended by some truly offensive things: banks engaging in wild speculation without concern for the risk, taxpayer bailouts for banks and other businesses, cozy relations between Wall Street and Washington, politicians getting favors from companies that want benefits from government, and big institutions pushing less powerful individuals around. True, he’s offended by some inoffensive things as well, such as the cut in the 90 percent top income-tax rate nearly 30 years ago. But by and large, what he rails against should be railed against.

(Update: Moore gets the tax-rate story wrong, and I let it get by me. The 91 percent top marginal rate fell to 77 in 1964 and 70 in 1965; this was the Kennedy tax cut — I wonder why Moore didn’t say that Democrats John Kennedy and Lyndon Johnson were the rate cutters. Under Republican Ronald Reagan, whom Moore wishes to demonize for cutting taxes for the rich, the rate dropped to 50 and eventually to 28 percent. HT: Gary Chartier.)

Had he called his movie State Capitalism: A Love Story, I might be applauding (with some reservations). But he’s targeting the more ambiguous “capitalism,” which he uses interchangeably with “the free market.” He can be forgiven for this, however. Most people would say that the current U.S. economic system is capitalist. Moore has probably heard that all his life. He’d hear if he watched a Fox financial program. Would Ben Stein or Lawrence Kudlow disagree? Moore has also heard Republican politicians, George W. Bush, for example, praise the existing system, with all its deep government interventions, as capitalist. He did this even as he and Treasury Secretary Henry Paulson, former chief of Wall Street behemoth Goldman Sachs, stampeded Congress into passing the $700 billion TARP bailout last year. Moore takes such people at their word: The free market is capitalism, and capitalism is what we have today.

Can we blame him for thinking this way?

Yes, it’s sloppy thinking, and had he been more curious and read beyond the confines of “Progressive” literature, he could have gotten the straight story. But many knowledgeable advocates of the free market contribute to the confusion by exhibiting what Kevin Carson calls “vulgar libertarianism,” or what Roderick Long describes as “the tendency to treat the case for the free market as though it justified various unlovely features of actually existing corporatist society.” How often have you heard a free-market advocate condemn pro-business intervention in one breath, then defend existing dominant corporations in the next — as though they did not arise in the interventionist environment just condemned? Pro-market is not the same as pro-business. If some market advocates don’t understand that, why should Moore? Vulgar libertarianism is a disconnect that makes the free-market philosophy look like a corporate apologetic. It’s done incalculable damage to the cause of freedom, in part by alienating potential allies. Who knows, maybe even Michael Moore.

Aversion to Profit

This may go a long way in explaining Moore’s aversion to profit — at least other people’s. He associates profit with business, which he associates with (state) capitalism. So for him, profit per se is suspect. But he should see a problem here. Does he think he’s exploiting moviegoers when his production company ends up with a profit? Do the co-ops and worker-owned firms he loves exploit their customers when they sell their products for more than their money costs? When two people barter, are they mutually exploiting each other because each gets more value than he gives up? To consistently oppose profit, one would have to oppose all human action, since every action aims at a surplus of subjective benefit over subjective opportunity cost.

Cornered like this, Moore might say he’s only the against excessive profits that capitalist market power permits. But now we’re back where we started. To the extent that intervention hampers competition by erecting barriers to entry — which is the usual effect, intended or not — protected firms are free to charge higher prices and reap more profits than would have been the case in an open market. Corporate power and privilege derive from political power and can’t exist without it. In contrast to existing capitalism, the truly free market would have no legal barriers to competitive entry, assuring that prices and returns are economically justified and not the fruits of privilege. Strictly speaking, entrepreneurial profit in a true market gets competed away because the very process of capturing them reveals valuable information to others and invites imitation. It takes innovation and efficiency — that is, superior service to consumers — to create new profits. Only the State permits business to make profits by withholding benefits from consumers.

But Moore doesn’t know this. What he “knows” is that the choice is between the current corrupt system — and it is corrupt — and some vaguely defined scheme of control by benevolent politicians, which he calls socialism and democracy.

In his movie Moore expresses affection for socialism, but he’s not clear what he means. He never advocates collectivization of the means of production or the abolition of markets. Instead he suggests that socialism means workers having a say in how the companies they work for are run. But why assume that’s anti-free market? He praises worker-owned companies and notes that hundreds of them exist in the United States today. He might be surprised to learn that these things are entirely compatible with the free market. In fact, it’s a perfectly libertarian intuition to abhor being subject to the arbitrary whim of anyone — yes, even a private employer. If government regulatory and tax obstacles to new competition and self-employment did not exist, workers would have their maximum bargaining power and widest array of alternatives. I imagine we’d see more departures from the traditional firm. People used to get their “social insurance” from mutual aid societies. Maybe in a true free market, we’d see a bigger role for the employment counterpart to these public, yet not governmental, organizations.

What would Moore think about a system in which no one could collude with politicians to legally plunder the rest of us for their own benefit and everyone was free to enter into any cooperative arrangements to produce and offer goods to others in voluntary exchange? Michael, that’s the free market!

FDR’s Second Bill of Rights

Of course, Moore naively looks to government to provide things. His movie laments that FDR died before he could see his Second Bill of Rights enacted. Roosevelt wanted government to guarantee everyone a good education, job, home, health care, and so on. Has Moore ever wondered where government would get the resources for this? He can’t really believe that somewhere there’s a massive pot of collective wealth waiting to be distributed. He must realize that the tax system would provide the money. But how can he not know that if government appears to penalize wealth creation with confiscation, less wealth will be created?

Moore is unaware that he commits the “Nirvana fallacy.” This is the erroneous idea that our choice is between the admittedly imperfect world we’re bound to live in if government leaves us alone and an imagined utopia in which benevolent and all-wise rulers oversee and regulate everything. Of course that is not the choice. Moore’s preferred system, whatever he calls it, would be run by individuals whose insight into the public interest would be no sharper and whose motives no purer than other people’s. However, since they would wield political power — which is the legal authority to compel obedience– they would be far more dangerous than anyone in a free market could ever be. He knows how corrupt politicians are. Why does he think different people would run things in his utopia? Does he really want them in charge of everyone’s job, education, health care, housing, pension, and the rest? It’s hard to understand why he isn’t uncomfortable with the idea of the people being tenants and employees of the State.

Whether he realizes it or not, Moore favors a system in which an elite necessarily would make critical decisions for the rest of us. He’d be incredulous to hear that, but if he ever comes to understand it, libertarians might end up with an unlikely ally.

Why is marriage even a concern of the State?

FEE Timely Classic
“The Politics of Freedom” by David Boaz

Are we children?

FEE Timely Classic
“Raw Milk and the Sour State” by William E. Pike

An inkling that minimum-wage laws have bad consequences.

FEE Timely Classic
“The Minimum Wage: Good Intentions, Bad Results” by Roger Koopman

Do the senators think we have too many devices?

FEE Timely Classic
“The Power to Tax Is the Power to Destroy” by Clarence B. Carson

A sign of things to come?

FEE Timely Classic
“The Future of the Dollar” by Henry Hazlitt

Neat: Proof of their success is that things could be worse.

FEE Timely Classic
“A Microeconomist’s Protest” by Mario Rizzo

Good diagnosis, bad medicine.

FEE Timely Classic
“What Hunger Insurance Could Teach Us About Health Insurance” by Joseph Bast

Rule by an elite.

FEE Timely Classic
“Regulation Red Herring” by Sheldon Richman

“Reality is negotiable.”

FEE Timely Classic
“Political Accounting” by James Bovard

Did we need more reason not to cripple the economy by raising energy prices through intervention?

FEE Timely Classic
“Unprecedented Global Warming?” by Michael Heberling

Easy answers are often wrong.

FEE Timely Classic
“Dos and Don’ts of Tort Reform” by Robert A. Levy

In his op-ed column Monday, Brooks imagines how Bentham and Hume would each approach global warming and health care. Bentham, he says, would display a policy wonk’s command of the nuts and bolts and come up with detailed government programs for imposing solutions to the problems.

“Mr. Hume, I’m afraid, wouldn’t be so impressive,” Brooks writes. He imagines that Hume — whining, head in hands, or weeping while in the fetal position — would confess his ignorance about solving the problems and then would propose just enough government intervention, such as a carbon tax and health-insurance exchanges, to “set off a decentralized cascade of reform, instead of putting all the responsibility on us here.”

Brooks then gets to his point:

This country is about to have a big debate on the role of government. The polarizers on cable TV think it’s going to be a debate between socialism and free-market purism. But it’s really going to be a debate about how to promote innovation.

The people on Mr. Bentham’s side believe that government can get actively involved in organizing innovation….

The people on Mr. Hume’s side believe government should actively tilt the playing field to promote social goods and set off decentralized networks of reform, but they don’t think government knows enough to intimately organize dynamic innovation.

Brooks predicts that Bentham will win because he serves the lobbyists interests.

Leaving aside Brooks’s defamation of Hume as a pathetic, sniveling character — David Hume? — we can take issue with his picture of Hume on a couple of other counts. I am no Hume expert (and I disagree with him on many issues), but I know enough to point out some important things Brooks missed in his effort to be cute.

Note that Brooks presents the debate over the role of government in fairly narrow terms. It’s between a government that actively organizes innovation and a government that actively sets social goals then arranges the carrots and sticks in order to induce people to achieve those goals.

In either case, government is the active party. Hume would not be comfortable with either team.

Stability of Possession

For one thing, Hume thought that society depends on, more than anything else, secure property. But how secure can property be if politicians of limited knowledge and perspective (not the impliedly lofty government) have the power to set goals for the rest of us and to impose incentives and penalties in the service of those goals?

Let there be no mistake about where Hume stood on the matter of property. In A Treatise of Human Nature (Book III, 1740) he writes of “the three fundamental laws of nature, that of the stability of possession, of its transference by consent, and of the performance of promises” and adds:

’Tis on the strict observance of those three laws, that the peace and security of human society entirely depend; nor is there any possibility of establishing a good correspondence among men, where these are neglected. Society is absolutely necessary for the well-being of men; and these are as necessary to the support of society.

“Stability of possession” is a favorite phase of Hume’s. Indeed, he emphasized that property should be respected even when in particular cases we do not like the outcome:

Property must be stable, and must be fix’d by general rules. Tho’ in one instance the public be a sufferer, this momentary ill is amply compensated by the steady prosecution of the rule, and by the peace and order, which it establishes in society. And even every individual person must find himself a gainer, on ballancing the account; since, without justice, society must immediately dissolve, and every one must fall into that savage and solitary condition, which is infinitely worse than the worse situation that can possibly be suppos’d in society.

These “three fundamental laws of nature” were not the conscious inventions of some Benthamite social engineer, but rather elements of an undesigned social order that produces benefits for the general population. Indeed, Hume along with Adam Smith, was a leading philosopher of the Scottish Enlightenment.  Its defining characteristic was the historic liberal appreciation that society was not constructed consciously but rather emerged spontaneously from the peaceful pursuit of self-interest and the social cooperation it generates. “[T]he rule concerning the stability of possession,” he wrote, “… arises gradually, and acquires force by a slow progression, and by our repeated experience of the inconveniences of transgressing it.”

He goes on to draw a parallel that will be familiar to students of Menger, Mises, and Hayek: “In like manner are languages gradually established by human conventions without any promise. In like manner do gold and silver become the common measures of exchange….”

Thus law, language, and money are institutions that are, in the words of Hume’s friend Adam Ferguson, “the result of human action, but not the execution of any human design.“

Public Good as Byproduct

Hume emphasized that, as spontaneously emergent institutions, the laws of justice and property were not intended to promote the good of the public, having grown out of “self-love,” but they nevertheless do so. This process is what Adam Smith would liken to an “invisible hand.” In fact, Hume wrote, the public good wouldn’t have been achieved had it been aimed at directly and consciously. He writes,

[I]f men had been endow’d with such a strong regard for public good, they wou’d never have restrain’d themselves by these rules; so that the laws of justice arise from natural principles in a manner still more oblique and artificial. ’Tis self-love which is their real origin; and as the self-love of one person is naturally contrary to that of another, these several interested passions are oblig’d to adjust themselves after such a manner as to concur in some system of conduct and behaviour. This system, therefore, comprehending the interest of each individual, is of course advantageous to the public; tho’ it be not intended for that purpose by the inventors.

Is belief in spontaneous social order and stable property consistent with the two forms of rationalistic discretionary government Brooks gives us? I think not.

One final word from Hume in light of today’s fiscal affairs: “The source of degeneracy, which may be remarked in free governments, consists in the practice of contracting debt, and mortgaging the public revenues, by which taxes may, in time, become altogether intolerable…” (Of Civil Liberty).

Somehow the free market will get blamed.

FEE Timely Classic
“Nationalization of the Mortgage Market” by Robert P. Murphy

And risk squelching the “recovery”?

FEE Timely Classic
“Inflation in One Page” by Henry Hazlitt

If you believe that they’ll cut costs as promised and that higher taxes will mean increased revenues.

FEE Timely Classic
“The Growth of Government in the United States” by Robert Higgs

No special pleading here.

FEE Timely Classic
“Creating Jobs vs. Creating Wealth” by Dwight R. Lee

They just can’t keep hands off.

FEE Timely Classic
“Can the Feds Save the Housing Market?” by Robert P. Murphy

More “creative” tinkering when it’s retrenchment that is needed.

FEE Timely Classic
“Human Ignorance and Social Engineering” by Wendy McElroy

Prettifying the prisons hardly constitutes “change.”

FEE Timely Classic
“What About Immigration?” by Julian L. Simon

Why isn’t that word offensive to more people?

FEE Timely Classic
“No More Czars, Please” by Lawrence W. Reed

Does the “safety net” prolong unemployment?

FEE Timely Classic
“Benefit Mandates Cause Unemployment” by Hans F. Sennholz

Markets preceded government, so why would government be needed to create markets?

FEE Timely Classic
“The Market and Political Freedom” by John Marangos

Out of control.

FEE Timely Classic
“Regulation by Reputation on the Net” by Aaron Steelman

Illogic 101: economic growth through higher energy prices.

FEE Timely Classic
“Climate Change: What if They’re Right?” by Max Borders

What an opportunity to dispense privileges.

FEE Timely Classic
“Transforming America: The Bush-Obama Stimulus Programs” by Randall G. Holcombe

Actually, it’s a tribute to the prowess of the market.

FEE Timely Classic
“The Folly of Economic Warfare” by Doug Bandow

Has any group of professionals ever been so spectacularly wrong? Pre-Copernican astronomers and cosmologists, I suppose, and for the same reason, really: They had an entire, internally consistent, theoretically rich system that described the universe. They were wrong — the sun and other celestial bodies save the moon didn’t actually revolve around the Earth, as they insisted — but no matter. It was a thing of beauty, their cosmic order. A vast faith was sustained in part by their pseudo-science, a faith from which such free thinkers as Galileo deviated at their own risk.

As it was with the pre- (or anti-) Copernicans, so it is with today’s mainstream economists. Theirs is an elegant system, a thing of beauty in itself…. It just fails to jell with reality. And unlike the pre-Copernicans… their latter-day equivalents in the economic profession pose a clear and present danger to the well-being of damned near everyone.

Meyerson elaborates on the problems with the mainstream:

[It] is not simply that it failed to predict the near-collapse of the world financial system last year. The problem is that it believed such a collapse could not happen, that all risk could be quantified by mathematical models and that these quantifications could help us correctly price just about everything. Out of this belief arose the banks’ practice of securitization, which put a value on all manner of mortgages and enabled buyers to purchase and swap them with the certainty that such transactions reflected an accurate judgment of the value of the properties and the risks associated with them.

Except, they didn’t. So long as economists insisted that they did, however, there really was no need to study such things as bubbles… Under mainstream economic theory, which held that everything was correctly priced, bubbles simply couldn’t exist.

Judging by these excerpts, you might suspect that Meyerson would have some sympathy toward Austrian economics. His characterization of mainstream economics could easily have come from an Austrian. But I admit I left some things out. Alas, Meyerson isn’t an Austrian. Nor has he any sympathy with the free market. In fact, he curiously labels mainstream economists, pejoratively, as “free market” economists, though he conflates two separable, indeed conflicting, things: belief in the virtues of the market and fascination with mathematical modeling. (To speak strictly, Austrian economics is not free-market economics. It is a particular, value-free approach to the discipline. It requires a moral judgment, which no economic theory can supply, to pronounce the market process, as described by the Austrians, good. To be sure, if one values freedom and prosperity, Austrian economics will be attractive and promising, though of course that is not the test of its validity.)

Meyerson reveals his leanings at the top of the column: “‘The worldly philosophers’ was economist Robert Heilbroner’s term for such great economic thinkers as Adam Smith, Karl Marx, John Maynard Keynes and Joseph Schumpeter. Today’s free-market economists, by contrast, aren’t merely not philosophers. They’re not even worldly.”

The mainstream economists he has in mind are those “at least with the purer strain of free-market economics associated with the University of Chicago.” Despite the financial turmoil they still have not learned their lesson, he says. “The quants at the banking houses say that they simply failed to sufficiently factor some risks into their mathematical models. Once they do, their system will be corrected, and banks can resume their campaign to securitize everything (as some banks are already doing by establishing a secondary market in life insurance policies).”

Then he tips his hand fully: “The one economist who has emerged from the current troubles with his reputation not only intact but enhanced is, of course, Keynes.” (That’s too big a topic to address here.)

Uncertainty and Risk

Interestingly from an Austrian perspective, part of what Meyerson likes about Keynes is his grasp “that an uncertainty attends human affairs that transcends quantifiable risk.” Any Austrian can say something similar. Austrians eschew mathematical economics precisely because human action doesn’t fit into equations and the knowledge presumed by mathematical modeling is denied real human beings.

People are not molecules or planets or rats or bloodless calculators reacting to outside forces or instinct. They are entrepreneurial actors who form preferences and plans based on expectations about the uncertain future, none of which can be quantified. Moreover, these factors manifested in action are not fixed and known in advance; people don’t behave according to predetermined utility functions or indifference curves. Plans and preferences emerge when people choose among alternatives in the hustle and bustle of life, and can change unexpectedly and unpredictably as new situations arise (that is, as other people do unanticipated things.) Value preferences are subjective ordinal rankings of utility, or satisfaction, lacking a unit to which cardinal numbers can be attached and manipulated mathematically. Real costs are subjective utilities forgone and thus unobservable to outsiders. There are no constant quantitative laws in human action, according to which, say, doubling the price of commodity guarantees a predictable quantitative response.

In other words, as the preeminent Austrian economist  Ludwig von Mises asked, “How can economic action that always consists of preferring and setting aside, that is, of making unequal valuations, be transformed into equal valuations, and the use of equations?”

In short, Austrians — Mises, Hayek, Rothbard, Kirzner, and those who have followed — stand second to none in rejecting scientism, the application of the methods of the physical sciences to the social “sciences.” They have relentlessly critiqued the mainstream’s out-of-touch preoccupation with mathematically describing the Neverland of general equilibrium, while ignoring real-world entrepreneurial action under uncertainty. No wonder Austrian economics has often been dismissed by the mainstream for rejecting the mathematicization that Meyerson properly ridicules.

Unfortunately, Meyerson seems oblivious of the Austrian school. If that were not the case, he would not imply that only the Keynesians are skeptical about neat mathematical models that claim to account for all eventualities. Nor would he identify the free market only with the Chicago school. He’d know that the Austrians were not among those economists who were “spectacularly wrong” as the financial fiasco approached. (It is surely inaccurate to say that all Chicago economists were unconcerned.) And he’d know that many prominent mathematical economists dislike the free market.

Austrians have long opposed the Federal Reserve’s price-distorting power over banking and money, the government’s intervention in the market for housing finance, and the too-big-to-fail doctrine that licenses unjustifiable speculation and rescues failing firms from the consequences of their actions. (That’s the free market?) Therefore, Austrian economists were not surprised by the housing bubble or the miserable aftermath of its bursting. Indeed, they have longed warned of a crash.

Where Are Fannie and Freddie?

Meyerson, unsurprisingly, never mentions the Fed, Fannie Mae and Freddie Mac, or the other agents of intervention that set the economy up for recession and other system-wide failure. To him the culprits are irrational animal spirits, no doubt with a big dollop of greed. Since he is blind to government’s responsibility for the crisis, he can write, “Thus the state must ensure against periodic madness in the markets with regulations and social insurance, because madness is a potential threat in markets just as it is in other human endeavors — because the market is a human endeavor, not reducible to a mathematical construct.”

Since the State is a human endeavor, too, why should we assume that government officials, who are plagued by ignorance, political incentives, and the lack of feedback, are immune to the “psychology” that Meyerson says the mainstream economists leave out of their models? Where is his rebuttal of the mountain of evidence that regulation and social insurance (such as federal deposit insurance) create “madness” through the construction of perverse incentives and moral hazard?

The mathematical economists might have been too busy with their models to notice that in the real world intervention was, and remains, rampant. Meyerson dislikes some of the right things. But his ignorance of Austrian economics keeps him from seeing the full picture. The free market didn’t fail — because there was no free market.

Think how bad things would have been without the “stimulus” bill!

FEE Timely Classic
“What is Seen and What is Unseen: Government ‘Job Creation’” by Larissa Price

Two-China policy.

FEE Timely Classic
“Adam Smith in China” by James Dorn

Shooting ourselves in the foot.

FEE Timely Classic
“The Topsy-Turvy Tariff Tangle” by W. M. Curtiss

Does the Second Amendment apply to the states?

FEE Timely Classic
“States’ Rights Revisited” by Gene Healy

He had to borrow it first. So what won’t we get for that money?

FEE Timely Classic
“Separate State and Science” (pdf) by Sheldon Richman